What it takes to get a first-time buyer from renter to homeowner right now

by Jon Gorey

Reality check

With first-time buyers wading into such a feverish market, it’s important to set expectations upfront, says Houston Realtor Thalina Garcia. That includes bracing buyers for potential bidding wars, but also asking probing questions about what truly matters to them, and where they might have some flexibility. “I’ve had to learn how to adapt and have difficult conversations way sooner than I would typically have with clients,” Garcia says. “Because it can be really overwhelming and sometimes a little discouraging right now, with multiple offers and low inventory,” she says.

South Florida Realtor Katherine Valverde, who often works with first-time buyers through Neighborhood Housing Services of South Florida, says some of her first-time buyers need a quick reality check at the outset. “A lot of them are like, ‘Okay, I’m approved for $300,000 — now I want a house with a pool, and it has to be a corner lot,’” she says. “It breaks my heart, but I have to ask them, what do you really need? And then we go from there.”

Control what you can

Setting realistic expectations is key, agrees Alexander Jean-Baptiste, in-house Realtor for the Massachusetts Affordable Housing Alliance in Boston. “We can’t tell the future, but I like to tell my buyers, based on what you’re asking for here, this may take a while,” he says.

But first-time buyers can also get discouraged by stories of bidding wars and rising prices, Jean-Baptise says. So he tells his buyers to tune out those distractions and to focus on what’s within their control. “A first-time buyer has to ignore that noise and get themselves into the best situation they can, whether it’s working on their savings goal, whatever number that is, or working on their credit,” he says.

“Maintaining a strong credit file and increasing cash reserves has never been more important,” echoes Atlanta Realtor Tiffany Durant. Another variable that buyers control is what type and price of home they’re targeting. With so little inventory, there’s heavy competition at virtually every price point in South Florida, Valverde says. “But it is even worse when first-time buyers are looking for properties below $300,000 — especially if they want a single-family home,” she says. “I try to explain that, at that price range, sometimes it’s better to go to a townhouse.”

In Houston, Garcia says most of her first-time homebuyers have been able to save up a 5%-10% down payment to make their offers more attractive. But she’s also found new construction to be less competitive than the resale market in many cases. “We’ve had a lot of developments that qualify for 0% down payment programs,” Garcia says, and many first-time buyers hold one key advantage over existing homeowners: a more flexible timeline. So they don’t mind buying into a project that’s still a few months away from completion. “A lot of people are in apartments, so they’re not in a hurry to move within 30 days,” she says.

Advisor, agent, part-time psychologist and Chicago Realtor Rich Aranson says part of his job is teasing out what it is buyers really want and using his deep area expertise to help them find it — sometimes in settings or neighborhoods they hadn’t considered. “I have probing, in-depth conversations with my clients, because I find obviously the better you listen, the better you’re able to deliver,” he says.

Aranson takes first-time buyers under his wing and doles out the kind of advice a parent or older sibling might give. That includes helping buyers keep a level head when almost every property sparks a bidding war. “I explain to my buyers, I don’t want them to buy just anything,” Aranson says. “Just because somebody else is foolish enough to overpay doesn’t mean you have to be foolish enough to overpay.”

While single-family homes have been most in demand lately, Aranson implores his first-time condo buyers to think about future rentability. “What if, in three or four years, when you want to sell, the market’s dead?” he asks them, a question usually greeted with a frightened stare. “I call that mortgage handcuffs — you don’t want to be in a situation where you want to have a child, you want to move to the suburbs you just got a great job opportunity in New York, and you’re stuck because you can’t sell your condo,” he says. “So having a condo that allows you to rent it means that you can transition out, or you can keep it in as an investment.”

Valverde says she wears many hats, especially with her first-time buyers — playing the role of therapist, financial advisor, chauffeur and motivational speaker, in addition to real estate agent. And while working with first-time buyers demands patience, empathy and hand-holding even in ordinary times, in a fast-paced seller’s market, agents have to guide nervous buyers through momentous decisions at what feels like warp speed.

The pace of the market right now is intimidating for buyers and agents alike, Valverde says. “You have to decide quickly on something that’s a huge investment,” she says. “Sometimes they say, ‘I need to talk to my wife,’ and I have to tell them, ‘OK, but you have to talk to her today, you cannot wait until the weekend.’ Because some places, you wait three days — or you wait one day sometimes — and the property’s not there anymore.”

Competing with cash buyers

It’s that ravenous demand that’s proving the biggest frustration for many first-time buyers. With interest rates so low, many renters can actually afford to buy a home in their area. In the Atlanta metro area, for example, the median renter could afford a $322,191 home, according to First American’s First-Time Homebuyer Outlook Report — putting about 64% of homes within reach. In Chicago, the median-income renter could afford 75% of homes for sale.

The bigger hurdle right now is availability: with so little inventory, first-time buyers can have a hard time competing with cash-heavy offers.

“Low down payment buyers are having the hardest time getting offers accepted now,” says Lucas McGary, a mortgage advisor with Fairway in Boston. To help first-time buyers’ offers hold up to those putting 20% or more down, McGary takes the pre-approval process one step farther: He sends clients through the whole underwriting process before they find a property, so he can offer them a pre-commitment.

“So they’re actually submitting an offer that’s almost like they’re paying cash — they’re waiving their mortgage contingency because they already have a commitment from a lender,” he says. “The seller knows that the deal is not going to fall through two weeks before closing.”

Still, without a lot of cash on hand — and, in many cases, with student loan debt dragging down debt-to-income ratios — it’s tough being a first-time buyer right now, McGary says. ”You’re going to take a lot of swings before you get a hit, and you’ve got to look at a lot of properties, you’ve got to make a lot of offers,” he tells them. “Take the emotion out of it, and just know that it’s part of the process.”

While some of Durant’s Atlanta clients have landed a home on the first offer, others aren’t so lucky. “Some clients are offering on three or four homes daily until they secure a deal,” she says.

One strategy Garcia suggests to her first-time buyers in Houston is targeting homes below their price limit. “If, let’s say, a client is approved for $300,000, then I would suggest to them maybe look a little bit under — that way it gives us some flexibility to be a bit more competitive in our offer,” she says.

Unique challenges — and rewards

Working with first-time buyers also requires an in-depth understanding of the many down payment assistance programs, grants and other opportunities available to them.

“There are a lot of lender programs for first-time homebuyers where they’re giving you a grant, up to $7,500, or they’re covering closing costs,”

Aranson says. A new Illinois program will even pay down a first-time buyer’s student loan debt to help them qualify for a mortgage. To that end, he says, it’s crucial to have good relationships with lenders who understand these programs.

Some first-time buyer loans — such as those backed by the Federal Housing Administration — can add wrinkles to the process, too. For example, a lot of condos in Miami-Dade County don’t have enough cash reserves to meet FHA requirements, Valverde says, “so it’s very hard for [an FHA buyer] to get into a condo, or a townhouse that is constituted as a condo.”

That makes the job a little harder, Valverde explains, but she enjoys the challenge. “I have much more homework to do, but it’s still doable,” she says. “What I do is I try to get very creative. Like if you tell me that you want a property in a certain area, and I don’t see any inventory, what I do is I knock on doors, talking to everyone in the neighborhood.”

But all that work pays off. Valverde says first-time closings are the most rewarding of all, because the buyers are so excited. She even teared up at a client’s closing recently — a single woman from Brazil who had been extremely nervous about the home-buying process at first, but is now proudly renovating her first home. “All that hard work that you do as a Realtor, it all pays off in that moment — when that person tells you how grateful and happy they are,” Valverde says. “It’s very, very emotional.”

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