First-time homebuyers might well wonder: Where are all the starter houses? They’re right to ask, because starter homes are becoming increasingly scarce in many housing markets. Housing inventory is low and home prices are soaring.
What’s a first-time buyer to do?
Here are five tips for finding a starter home:
Be realistic about today’s market. Sellers clearly have an advantage in the current market. Inventory is low, which keeps pushing home prices to record levels, according to the National Association of REALTORS® (NAR). Buyer competition is fierce, as homes in the lower price ranges fly off the market.
Unfortunately, that leaves many first-time buyers––especially those with tight budgets––on the sidelines. If you’re searching for your first home, be realistic about what you can afford and what amenities come with that budget. (Hint: You may have to forgo top-of-the-line appliances and shiny quartz countertops.)
A starter home isn’t necessarily your forever home. Be prepared to make some compromises to get your foot in the homeownership door.
Adjust your wish list. Buyers shopping for their first home need to be open-minded about the location, size and condition of the home they want to buy, says Tim Deihl, associate broker with Gibson Sotheby’s International Realty in Boston.
For many buyers, a classic starter home, which traditionally doesn’t have many amenities, is more achievable.
If your first home is the place you’re going to have your family, maybe build an addition and stay there forever; that’s one set of criteria. If your starter home will be a financial launch pad into a larger, better home, that’s a different approach.
Another strategy: Look for an older home in a well-established neighborhood. Resales typically cost less than brand-new homes, says Bradley Hunter, chief economist for HomeAdvisor.com, a home improvement matching service based in Golden, Colo.
Older homes typically need more maintenance and repairs, which offset some of the savings; however, Hunter says, buyers who choose a used home might be able to do repairs and renovations over time, pacing themselves to make the cost manageable.
Hire the right real estate agent. When you’re up against stiff competition, working with an experienced real estate agent who knows the local market is key.
Look for an agent who specializes in the neighborhoods you’re interested in. Savvy agents should be able to answer your questions about neighborhood amenities, local schools and nearby home values.
A good agent shines when it comes to negotiating the deal and writing a strong offer letter backed with solid data. Your agent can suggest certain strategies to win in a competitive market, such as limiting contingencies or writing a personal letter.
Ask friends and relatives to recommend agents they have used and were happy with. Also, interview two or three different agents. Find out how they prefer to communicate with clients and how often you’ll get updates. Finally, research the agents you’re considering online to see what past clients have said about their work.
Rethink location. If you’re thinking about starting a family in the future, don’t focus too much on your home’s location, size and school district just yet. Resetting those parameters can make it easier to buy a first home.
Buyers may be in a position where schools won’t impact them for six or seven years. That’s a good opportunity to buy in the city, make some money and roll that into a community where they want to be longer-term with the kids.
Buyers who sacrifice location for affordability can find themselves in a neighborhood far from major job centers with a long daily commute and expensive transportation costs. Sometimes that trade-off makes sense, but not always, says Cathy Coneway, a broker for Stanberry & Associates REALTORS® in Austin, Texas.
“You have to look at how much you make and how much you can afford to spend for gas,” Coneway says. “You might actually be better off buying a house that’s closer to town so you have more cash flow for property taxes, insurance and living expenses.”
Make a strong offer. When a well-priced starter house comes on the market, the quest to buy it can be “super competitive”.
One way to strengthen an offer is to present a loan preapproval that includes everything but a title search, appraisal and hazard insurance, says Jay Dacey, a mortgage broker at Metropolitan Financial Mortgage Co. in Minneapolis.
A strategic phone call might help, too.
“We call the listing agent and say, ‘Mr. and Mrs. Jones submitted an offer on your property. Not only are they preapproved, but they’ve gone through the underwriting approval process with our bank,’” Dacey says. “That makes the offer stronger.”
Other ways to entice sellers: Offer above asking price (if you can afford to), keep repair requests to a minimum, make a larger down payment or give them more time to move after closing.