September 6, 2023
For today’s first-time homebuyers, who face a triple threat of high interest rates, tight inventory and inflated housing prices, home ownership may seem like an impossible dream. But take heart – by working closely with a lender, realistically assessing your financial situation, and taking advantage of available financial literacy and first-time homebuyer programs, your dream of home ownership can still become a reality.
The economics of the housing marketplace certainly may feel less than welcoming right now. In early September, the average 30-year fixed mortgage rate was around 8%. Current interest rates may not only limit affordability for buyers, but also make many current owners with older low-rate mortgages unwilling to sell. The National Association of Realtors (NAR) reports that the supply of existing homes available for purchase is at a more than 20-year low, keeping prices relatively high. The median existing home sales price is now over $400,000.
Even with these obstacles, there are many steps prospective first-time buyers can take to improve their chances of finding – and financing – a home in this market.
Know your local lender. A great first step is to engage with a lender, to get the benefit of our experience, market knowledge and perspective. As lenders, we are happy to invest the time to build relationships with potential borrowers – especially now, when mortgage loan volume is cyclically low. We can help you understand how much house you can afford, what financing options are available, and what to expect from the application process.
Pre-qualify before you shop for a home. Most mortgage lenders will allow borrowers to apply and receive a pre-approval for a home loan. A pre-qualification enables borrowers to determine, in advance, what price range of home they can afford, so they have realistic expectations before they begin house hunting. Also, a buyer’s offer will be more attractive to the seller if it is backed by a pre-approval.
Become smarter about your finances. Many lending institutions, state and local governments, and community organizations offer financial literacy programs. First-time home buyers may find it helpful to expand their knowledge about managing their money, budgeting for unexpected events, and other aspects of “financial wellness”. At OceanFirst Bank, for example, we offered approximately 263 hours of financial literacy programs over the past year, often in partnership with local organizations such as Junior Achievement of New Jersey and Lunch Break.
Explore homebuyer incentive programs. A number of lenders, as well as government entities such as the NJ Housing and Mortgage Finance Agency, offer programs to assist first-time homebuyers. One example is OceanFirst’s NeighborFirst program, created for homebuyers in New Jersey, New York and Pennsylvania. The program currently includes a discount on the mortgage interest rate, a low down payment, and reduced fees, among other features for borrowers who meet the requirements. Plus, eligible first-time homebuyers may receive a $2,000 grant towards closing costs.
Consider new construction vs. an existing home. Many homebuyers are attracted to the charm of an older property. Others may be willing to trade the eventual cost of renovations for a lower purchase price. However, an existing home might not be an option, given the current tight inventory. On the other hand, some communities do have a supply of newly built homes available, and prices are becoming more competitive with older housing stock. The NAR reports that new construction inventory has risen sharply from the pandemic period lows. Sales of new single‐family homes in June 2023 were up 24% from a year ago, according to a report from the U.S. Census Bureau and the Department of Housing and Urban Development.
Bottom line: Well-informed, prepared and resourceful first-time homebuyers don’t have to be locked out of the housing market.
On a related note: A career in mortgage lending – especially working for a community banking institution – can be very rewarding. It’s great to work with homebuyers and help them put down roots, establish equity in an important asset, and build a future. If your goal is to help others reach their goals – and you value engagement, teamwork and excellence – consider a career in mortgage lending.