One-third of all recent homebuyers purchased a home for the first time, according to data from the National Association of REALTORS® (NAR).
While buying is a big step, first-time buyers have found themselves in one of the most competitive housing markets in years because of the limited inventory and outsized demand.
That is why it is so important for REALTORS® to educate and prepare potential buyers about the whole process and set realistic expectations, according to Illinois REALTORS® Gaspar Flores Jr. and Jordan Pyle.
Both Flores, who is a broker and owner of Su Familia Real Estate in Chicago and Bolingbrook, and Pyle, a broker with Compass in Chicago, estimate that more than 50 percent of their clients are first-time buyers.
When working with first-time buyers, there are a few things REALTORS® can do to make the homebuying process smoother.
Determine a buyer’s short and long-term plans
Gaspar Flores Jr.
Flores talks to his clients about their 5- to 10-year plan. If they are looking at a two-bedroom home now, will it still fit their needs in 10 years?
With many Millennials entering the market, Pyle asks how long they are going to hold onto the investment. If they could be moving out of the area in a few years, now might not be the best time to buy.
Even buyers who intend to stay might have to suddenly switch gears if there is a job change or life issue. It can be good for young, first-time buyers to consider a property they could potentially rent out while waiting to sell if they have to relocate quickly, Pyle says.
Budget the home purchase on the money you have now
When first-time buyers are looking at properties, remind them to budget based on current earnings and not what might happen in the future, Flores says.
Some might be expecting a raise or promotion soon, but they shouldn’t count on that for the purchase, he says. Buy a home that fits within the present budget and keep any extra, future money available for the other homeownership costs that pop up.
First-time homebuyers do not want to end up being financially tight by buying at the top of their limits and leaving little money and limited resources for anything else, even home improvements.
Did you know?
SOURCES – 2021 NAR Profile of Home Buyers and Sellers, NAR 2021 Impact of Student Loan Debt study
Top 10 features first-time buyers want in a home
SOURCE: National Association of Home Builders study, What Home Buyers Really Want, 2021 Edition
Breaking first-time buyers down by generations
SOURCE: National Association of Home Builders study, What Home Buyers Really Want, 2021 Edition
Be willing to think outside the box
“Sometimes the path to homeownership doesn’t start with the traditional single-family home. For some potential first-time buyers, particularly in Chicago or other metro areas, buying a multi-unit building can be a good option, Flores says.
A multi-unit property allows new buyers to get established and they do not have the burden of the entire mortgage payment out of the gate, he says. Over time, this initial multi-unit property can earn income and create savings that can be used to buy a single-family home, while also keeping and owning the investment property.
Break down how the entire process will work up front
“First-time buyers may be excited to get out and start looking at houses immediately, but they need to understand the full process first.
Education and preparation are important at the outset because a lack of information and clarity leads to bad financial decisions, Pyle says.
He walks his first-time buyers through a four-step process that includes: helping clients narrow down their wish list in a home, explaining how the showing process will work, outlining the offer process and strategies when buyers do find the right property and finally, everything to expect later from contract to closing.
There are many challenges for first-time buyers. It’s a highly competitive housing market with lower available inventory, higher home prices and move-up buyers, who have accumulated equity and might be able to put down a bigger down payment, also hunting for properties. But for first-time buyers who prepare and are ready, it could be a great time to get their piece of the American Dream of homeownership.
By Stephanie Sievers, Illinois REALTORS® Director of Marketing
Jordan Pyle
Financial institutions seeing more first-time buyers entering the market
In a Freddie Mac column, “First-time Homebuyers are Driving the Market Forward,” earlier this year, Vice President and Chief Economist Sam Khater said people entering the housing market for the first time have become a major driver of demand.
In 2021, Freddie Mac financed 554,000 loans for first-time homebuyers, up 22 percent from the year before and the highest level since Freddie Mac began tracking in 1994, according to Khater. And in the last decade, the share of first-time homebuyers for Freddie Mac purchases rose from 36 to 46 percent.
Millennials are a factor in that, he says, as more reach their early-to-mid-30s and start thinking about homeownership. And more first-time buyers are in the potential pipeline with the number of higher-earning renters doubling in the last 10 years, according to Khater.
There are issues affecting new homebuyers including a lack of affordable, entry-level homes and rising mortgage rates, but overall first-time buyer demand is still a bright spot.
“First-time buyers have not only been behind the rise in purchase activity prior to this year, but so far first-time homebuyers are serving as a purchase market buffer against the rising tide of mortgage rates,” Khater said.
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