Summary: With the lowest interest rates ever; hundreds withdrawn from looking for homes due to…
Summary: Being a first-time homebuyer in Washington state can be challenging, but exactly what kind of hurdles could you be facing in 2020? In this article, we’ll go over what those are.
Being a first-time home buyer in Washington state can be an incredibly exciting experience, but it can also be a real challenge. Considering the size of this investment, a home purchase is likely the most expensive asset that buyers will ever make in their lifetime, and as such, it’s important to do your due diligence and make all the right moves to ensure a successful transaction.
The thing is, there are certain challenges that buyers often face when it comes to buying real estate, especially first-time buyers.
Here are some hurdles you may face in 2020, and how to overcome them.
- Tight Inventory in Washington Markets
- Lots of Debt
1. Tight Inventory in Washington Markets
In many centers across the state of Washington, housing inventory has been extremely tight. It’s what’s been driving prices higher and higher, especially in parts like Seattle. Month after month, inventory remains an issue for buyers who have to compete more directly with other buyers as a result of fewer properties available.
According to reports, many prospective homebuyers must expand their search parameters beyond where they may have initially been interested in looking simply because the inventory isn’t there. And even when it is, the prices are often out of their range. Prices in King County, for instance, have sale prices that are hovering around the $667,000 mark, a number that is simply far too high for the majority of first-time buyers in Washington state.
In areas right outside the Puget Sound region, double-digit price growth is being seen. While Seattle’s housing market may be cooling over the last few months, it’s still seen incredible gains over the past few years to the point that home prices are way out of many buyers’ league. And in other places in the area that may be more affordable, prices are experiencing incredible growth as a result of tight inventory, such as Tacoma.
The pending sales numbers show that buyers are definitely out there looking to buy and willing to purchase, but there just aren’t enough houses to serve them all, which is a big problem for buyers today and will be in 2020. One word of advice for first-time homebuyers is to expand their search if they’re looking in a market where inventory is low.
Piggybacking off the issue of housing inventory is affordability. There are several factors that affect affordability and home prices, and inventory is certainly one of them. In certain centers, such as Seattle, Bellevue, and Redmond, home prices are through the roof. According to Zillow, prices in these cities range anywhere from $767,000 to over $987,000.
Clearly, these numbers are not feasible for the average first-time homebuyer to reach, especially without any proceeds from a previous sale to use as part of the purchase. In these real estate markets, buyers with average incomes might find that they’re unable to afford a home purchase for a median-priced property.
Of course, the issues of affordability vary by area. While markets like Seattle or Bellevue might be difficult to get into for first-time homebuyers because of the steep home prices, there are areas not far from these centers that offer prices that are a lot lower, making them much more attainable to this pool of buyers.
So, there are definitely still many housing markets that come with affordable prices for first-time homebuyers, including Kent and Federal Way where homes are valued just over the $400,000 mark.
First-time homebuyers are encouraged to begin researching prices for homes in the area they are interested in to determine whether or not they can realistically afford it. If not, look around at nearby areas where home prices are a lot lower, which is the case with Kent versus Seattle. Otherwise, start saving for a sizable down payment early enough to lower the overall loan amount to increase your odds of getting approved for a mortgage.
3. Lots of Debt
Like millions of young Americans, student debt is a massive issue that can get in the way of getting a mortgage, or any other type of loan for that matter. Graduates often come out of post-secondary institutions with tens of thousands of dollars of student debt which they are then responsible to pay back. And when getting right out of school, job opportunities might not necessarily be the biggest-paying jobs right out of the gate.
And that’s just student debt. Many first-time buyers also have other types of debt, including personal loan debt, auto loan debt, and credit card debt. That can all add up to be a pretty penny, which can make it difficult to both pay down their debt loans while simultaneously trying to save up for the down payment for a mortgage.
Unfortunately, debt can get in the way of securing a mortgage and buying a home, especially in certain centers in Washington state where home prices are very high relative to the state or national average. According to reports, total household debt in the US is now over $13 trillion, and that number continues to rise.
This a possible issue for first-time homebuyers in 2020 because it can make mortgage financing out of reach, especially if the debt load is far too much. Not only will it be difficult to save up for a down payment, but it can also make it difficult to get approved for a home loan, as lenders look at debt load as one of the factors they use to assess an applicant’s risk level and ability to make mortgage payments. In fact, one of the biggest reasons why mortgage applicants are denied a home loan is because of debt.
Buyers are encouraged to focus on paying down whatever debt they have to a more manageable level before applying for a mortgage. Lenders like to see debt-to-income ratios (a measure of how much monthly income is dedicated to paying monthly debt bills) below 43% although some programs allow as high as a 50% debt to income ratio, so take some time to hunker down and reduce your debt levels first to make things easier for you.
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Sammamish Mortgage is a local mortgage company serving the broader Pacific Northwest region, including Washington state, Idaho, Colorado, and Oregon. We are proud to offer a wide variety of mortgage programs and products with flexible qualification criteria. Please contact us if you have any questions or are ready to apply for a home loan.