Buying a First Home Could Be Very Challenging: Here’s Why

July 13, 2022
Last updated:
January 30, 2024
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Are you thinking of buying your very first home this year? If so, there are a few important steps you should take to boost your chances of mortgage approval. While buying a first home in 2024 may be exciting, it can also come with a few challenges.

Buying your first home can be a challenging task, especially when it comes to getting your finances in order. What are some obstacles you could face and how can you overcome them?

What is a First Time Homebuyer?

As the name implies, a first-time homebuyer is someone who is buying a home for the first time. First-time homebuyers can take advantage of several programs and loan types that help make buying a home more feasible and affordable, given the fact that this demographic does not have the proceeds of a previous home sale to put towards the down payment for a new home.

The US Department of Housing and Urban Development (HUD) offers a more detailed definition of a first-time homebuyer:

  • A person who has never owned a principal residence.
  • A person who has not owned a principal residence for a 3-year period up to the date of purchase of a home.
  • A person who owned a property that was not in compliance with building codes without building a new structure.
  • A single parent who owned a primary residence with an ex-spouse.
  • A recently divorced or widowed person who only owned a primary residence with an ex-spouse.

Buying a First Home Can Be Challenging

Being a first-time homebuyer is thrilling, but it also comes with some obstacles that can make it a bit difficult to get into the game:

Low Budget

Perhaps the biggest challenge that first-time homebuyers face is coming up with a sizable down payment. Considering the soaring prices of homes these days, saving up for a decent-sized down payment can be pretty tough. Depending on a buyer’s income, it can be hard to save up tens of thousands of dollars or more to take out a mortgage.

Conventional mortgages, for instance, require a 20% down payment to avoid Private Mortgage Insurance (PMI). If you’re buying a home in Seattle where home prices are currently averaging $815,865, for instance, you’d need $163,173 in cash to meet this threshold. For many first-time homebuyers who don’t have the benefit of a previous home sale to contribute to a new home purchase, coming up with 20% can be difficult, if not impossible.

Shaky Credit

One of the more important factors that lenders look at when assessing a mortgage applicant’s ability to secure a mortgage is the credit score. Mortgage lenders place a lot of weight on this 3-digit figure, and borrowers who don’t have a high enough score can either get turned down for a mortgage or be stuck paying a higher interest rate.

Good credit scores can be challenging for first-time homebuyers because many of them are younger and don’t have long credit histories. It takes time to build good credit. First-timers who apply for a mortgage before they’ve had enough time to establish good credit may find it more difficult to get approved for a mortgage at a low rate.

Conventional mortgage lenders typically like to work with borrowers who have a good credit score of at least 680 or higher. Those with lower scores may have to pay higher interest rates, but may be able to refinance for a lower rate after a few years have passed.

Short Employment History

Borrowers need a sufficient income and steady employment to get approved for a mortgage and keep up with mortgage payments. Lenders prefer to work with borrowers who have worked with the same employer for at least a couple of years or longer, but younger buyers may not have the employment history to meet these criteria.

Many first-time homebuyers may still be working towards building their careers and may not have worked long enough to be considered to have a steady income. However, programs exist to help homebuyers in certain professions: for example, there are home loans for medical professionals just starting their careers that allow doctors with a contract to go to work at a hospital to buy a home with very little money down.

What Are the Extra Challenges of Buying a First Home This Year?

In addition to the typical challenges that the average first-time homebuyer faces, there are other obstacles specific to buying a first home in 2024:

Home Prices

The average home price decreased 1.3% in the US over the past 12 months, and they’re expected to increase this year.

Sky-high home prices present a challenge for first-time homebuyers. Many have a small budget to work with and may not have had enough time to build their career to the point where they’re earning a substantial income to afford an expensive home purchase.

Competitive Seller’s Market

Competition is fierce in the housing market across the country. It’s been a seller’s market for the past couple of years, and there are no signs that things will change any time soon. That means buyers are competing hard with others vying for the same properties.

In fact, bidding wars have become the norm in many housing markets, including Seattle and other surrounding centers. According to Zillow, homes in Seattle sell after only 6 days on the market, down from 27 days last year.

Homebuyers can be more competitive in a sellers market by working with a lender who offers underwriting at the front end of a loan approval, such as Sammamish Mortgage’s Diamond Homebuyer program. This allows homebuyers to make stronger offers since the loan is already in the underwriting process.

Tight Inventory

Housing supply is very tight these days and has been for quite some time. In places like King County, WA, for instance, there’s only a 0.55-month supply of housing available for buyers. That means it would take just over half a month to completely sell every available property currently listed for sale, based on King County’s current rate of sales activity.

With such few homes to choose from compared to the number of prospective buyers out there, finding the right home within budget and without losing a bidding war can be difficult for first-time homebuyers.

What Are the Upsides to Buying a First Home in 2024?

Despite some of these challenges that come with buying a home in 2022 for first-time homebuyers, there are some perks to buying this year:

Low Mortgage Interest Rates

Right now, mortgage rates are relatively low compared to years past. Given the low rates we are still seeing, homebuyers can save tens of thousands of dollars over the life of their loans on interest. Now is still a great time to get into the market, despite high home prices.

After hitting rock bottom in January 2021 at 2.65% for 30-year fixed-rate mortgages, rates have been inching up ever since, despite the odd dip here and there. As of this writing, the rate for a 30-year fixed mortgage is 5.750%.

Considering the fact that rates are increasing, locking in a rate sooner rather than later can make a big difference in the cost of a mortgage. Even a 1% increase can make a huge difference.

Lenders Are More Competitive

Mortgage lenders are competing more on mortgage programs to win the business of borrowers, which is a good thing for buyers. Further, lending criteria, which is still somewhat stringent, have been showing signs of loosening over the recent past.

According to the Mortgage Bankers Association’s (MBA) latest Mortgage Credit Availability Index (MCAI), credit availability increased in February. More specifically, the index inched up by 0.7% from the month before. An increase in the MCAI indicates that underwriting guidelines are loosening.

Build Equity Quickly With Increasing Property Values

The high prices of homes may be a burden for first-time homebuyers, but it also gives them a chance to take advantage of quick gains in equity as prices increase at such a rapid pace. Experts agree that home prices will continue to rise at a healthy rate over the course of 2022, giving homeowners the chance to see significant gains in the value of their homes.

Today’s Mortgage Rates

How Can You Improve Your Chances of Buying a Home in 2024?

There are a few things you can do to boost your chances of getting approved for a mortgage to buy your first home in 2024:

Get Pre-Approved

Before you begin your house hunting journey, speak with a mortgage company first. More specifically, you’ll want to get pre-approved for a mortgage before you start making the rounds of houses you could be interested in. A pre-approval letter can set you apart from other potential buyers.

Getting pre-approved will tell you how much of a loan you can get approved for, which will help you focus only on homes that fall within your budget. Pre-approval will also show sellers that you’re a qualified and serious buyer, which can go a long way in a competitive housing market. Plus, it can help move the final mortgage approval process faster once the seller accepts your offer.

Use a Mortgage Calculator

Plugging in a few key figures into a mortgage calculator can give you a much clearer picture of how much your mortgage will cost you and how much you can afford to spend on a home purchase. Calculating variables such as mortgage interest rates, down payment, and mortgage term will help you determine which option is best for you.

Pay Down Existing Debt

Your debt-to-income ratio will impact your ability to get approved for a mortgage. Even if your income is high, a big pile of debt can offset any money left over after you’ve paid all your bills. Most lenders prefer to see debt-to-income ratios no higher than 43%, though some may accept ratios as high as 50%. The lower the number, the better.

Give Your Credit Score a Boost

As noted earlier, your credit score holds a lot of weight in your mortgage application. Ideally, your score should be at least 680, though some lenders may be willing to work with borrowers with scores a little lower than that.

To improve your credit score, make sure all your bill payments are made on time every billing cycle, keep your credit card expenditures under 30% of your credit limit, and avoid applying for new loans or credit accounts until well after your mortgage application is approved.

Start Saving Early

Your down payment amount will play a key role in your ability to get approved for a home loan, as well as the rate your lender will charge you. A bigger down payment will not only reduce your overall loan amount and mortgage payments, but it will also boost your odds of loan approval. Give yourself as much time as you can to save up for a down payment before you start the search for a new home.

Get an Instant Mortgage Rate Quote Today

Why Choose Sammamish Mortgage?

At Sammamish Mortgage, we can help you get fully pre-approved for a mortgage, and shepherd you through the homebuying process all the way to your closing date.

Sammamish Mortgage has been in business since 1992, and has assisted many homebuyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help you get pre approved. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon, and Washington.

Contact a loan officer if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.

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