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Shortage of Homes Puts Pinch on First-Time Homebuyers

Overcome the fear of a fierce market by doing the work to make a quick and decisive offer.

By Tina Lookup, Manager, Mortgage Lending, ESL Federal Credit Union
May 23, 2018

It’s hard enough trying to find a home, but first-time homebuyers these days are facing a particularly rough go of it.

A shortage has driven up the price and competition on many properties in the Rochester area.

In the first three months of this year, new home listings were down nearly nine percent compared to the same period a year earlier, according to figures from the Greater Rochester Association of Realtors.

Overall, the number of homes for sale was down 21.2 percent.

Dwindling availability has come as threats of higher interest rates and high rental costs have many looking to purchase a new home. It has forced buyers to make quick decisions.

Low inventory plagues several areas in the country. Foreclosures are at prerecession levels. Older homeowners are waiting longer to add their listings.

Many potential buyers have lost out because they weren’t prepared.

My advice: Don’t panic and take a deep breath.

The time to slow down and make sure all the bases are covered is when a homebuyer feels the most pressure. It’s the perfect time to ask questions and to make sure the team in place is all moving in the same direction to support the purchase, from Realtor and creditors, to real estate attorneys, inspectors, and more.

  • Find a lender who can help streamline the process, answer questions, assist with other services, and knows the Rochester market.
  • Write out a list of items of “must-haves.” Want four bedrooms? How much space? Where? What exactly is needed in a new home?
  • Get prequalified from a lender to determine how much house you can afford based on credit history, income, and other factors. Calculate the down payment, the size of the mortgage, and understand the long-term impact of these amounts on budgets.

Depending on the down payment, a new homeowner may be required to pay for private mortgage insurance. It’s an added cost to a mortgage for those putting less than 20 percent down on the cost of the home.

Cash-strapped buyers may find themselves applying for an FHA loan from the Federal Housing Administration, an agency that insures the loan allowing for a lower down payment.

Interest rates, meanwhile, are currently slightly higher than 4.5 percent for a 30-year mortgage. We don’t expect the rates to increase greatly during the year based off various federal indexes and other measures we regularly follow.

Potential homeowners face several other decisions:

  • Do you go with fixed, variable, or balloon loans?
  • Will the sellers need concessions?
  • Are there any rent-back fees taken off the sale?
  • Are the realtor fees paid by the seller?
  • What happens if the roof, furnace, air conditioner, or other part of the house don't pass inspection?

Again, buying a home is not for the faint of heart. It’s a fierce market, especially for middle-priced homes. There are several courses and programs out there devoted to helping new buyers.

But with proper planning and work with a reputable lender invested in the community, first-time homebuyers can find a home they want to live in for years to come.

It’s the preparation that will allow a new homebuyer to strike quickly when the opportunity arises.