By Celeste M. Smucker –
Buying a first home is an exciting event and something families look forward to, sometimes for years. Today’s first timers, primarily Millennials, are no exception. Most want to be home owners and, according to a 2017 article at Business Insider, over 66 percent of them expect to realize this dream over the next five years.
This is good news for the real estate industry and for Charlottesville-area sellers in the under $300 thousand price range who are ready to move into their next home.
At the same time, the National Association of REALTORS® reports that “Despite solid interest in buying a home [on the part of Millennials]—sparked by steady job gains, record low mortgage rates and higher rents—the severe drought in housing supply in much of the country over the past year accelerated price growth and kept many first-time buyers out of the market.”
Often, too, Millennials face another challenge: a mountain of student loan debt that can make it difficult to save a down payment or qualify for a loan.
Fortunately there are many resources to help them overcome these challenges, starting with agents and lenders ready to walk them through the process and show them ways they may not be aware of to manage student loan debt and find the homes they qualify for, as well as advise them on how best to negotiate with sellers so they can move forward with a successful purchase.
A big key for these buyers is to talk to their lender early says Andy Zemon, Sales Manager and Loan Officer with Waterstone Mortgage Corporation in Charlottesville. The decisions they make today about seemingly unrelated issues that impact their credit scores can have a long-term impact on their ability to buy a home.
It is also critical for these buyers is to hire a REALTOR® and “put trust in them” as the experts who have helped many others through this complex process, said Jamie White with Montague, Miller & Co. – Downtown.
So contact your real estate pros today. Not only will they help you decide if you are ready and able to buy, they can also give you the education you need to make good decisions and help ease you into home ownership with a minimum amount of stress. And if you are not quite ready to buy today, your lender can help structure a plan to get you there as soon as possible.
First Steps
The NAR reports that 99 percent of Millennial buyers start their home searches online prior to contacting an agent.
This means the internet is the source of much of their initial education and while this makes them much savvier first-time buyers than their parents were, many of these real estate newcomers may not be skeptical enough to question the validity of the info out there, said Julia Morris with Fulton Mortgage.
She advises them to “just do a little homework” starting with a reliable site such as that of the Piedmont Housing Alliance (PHA) to get familiar with the terminology, the procedures, and the requirements for buying a home.
A good example of common misinformation is the oft-repeated suggestion that buyers need to be prepared to save as much as 20 percent of the house price for their down payment, something that is far from the truth, Zemon said.
Instead he suggests buyers contact their lender to help determine how much house they can afford. If the down payment amount is a challenge, as it is for many first-time buyers, there are a number of different options available, some of which can be accessed through PHA.
The lender can also assist them with choosing the right loan package. For example, buyers may be familiar with USDA loans as they offer 100 percent financing and have received a lot of press lately. While this program is a great opportunity for some, Morris said, it’s not the only one and may not be the best one for everyone.
She recently worked with a young couple who was better off with a 100 percent loan package that included a VHDA (Virginia Housing Development Authority) loan combined with a second loan from FHA. This formula also covered 100 percent of the home price, but because of the way it was structured, the buyers will not have to pay a monthly PMI (Private Mortgage Insurance) premium saving them lots of money over the life of the loan.
Call Your Lender Early
A big issue for first timers, Zemon said, is they often wait too long to consult their lender. He regularly counsels renters to call their lender right after they sign a one-year commitment on an apartment or house if they plan to buy a home when their lease is up.
Buyers paying off student loans can also get helpful advice from their lenders. There are alternative ways to structure this obligation and a lender can direct the buyers to resources that help them make decisions that keep open the possibility of purchasing a home while they pay off their outstanding college debt.
Some graduates may have multiple loans and there are some “great plans available,” for consolidation, Morris said. Or they may be able to choose a repayment plan based on income, she continued, which often results in reasonable and more manageable payments. However, “often they do nothing,” which can leave them in a difficult situation if they want to become home owners.
Many first timers have good credit and can proceed right into getting pre-qualified for their mortgage loan. Others, however, may have marginal or damaged credit including outstanding collections. In that instance lenders can either help them to develop a plan of action so they qualify for a mortgage in the future, or refer them to a housing counselor at PHA for a similar service.
In any case, talk to your lender first before taking action on credit issues, Zemon explained, adding that buyers with collections often want to pay them off quickly thinking this will enhance their credit scores. However, while this may seems logical, buyers need to consult with their lenders first about how to do it correctly since otherwise they may have “no shot at getting a house.” Some collections need to be paid off immediately, others not, he said. Bottom line, get advice before taking action.
For first timers with clean credit, the first call still needs to be to their lender who can ask the key questions, run some numbers and let buyers know the answers to two crucial pieces of information: how much their monthly payments will be and how much house they can afford. Their lender will also educate them about costs of home ownership they may not be aware of such as taxes, insurance or Home Owner Association (HOA) fees.
Nobody wants to find the perfect house, fall in love with it and then find out it’s out of their price range, or that the monthly payments are way more than they are comfortable with even if they are qualified to buy it. Talking to the lender first helps avoid this kind of heart break.
When buyers are deemed qualified to obtain a loan, the lender writes a pre-qualification or pre-approval letter. With this in hand, buyers are now ready to talk to their REALTOR® about which homes to view.
When they find one they like, their agent will use the lender’s letter to prove to sellers they are serious and qualified to follow through on their offer. This is especially critical in our current market where multiple offers on popular homes are not uncommon.
First-Time Buyer Market
The real estate market is active at all price points, so much so that agents’ biggest complaint is the lack of inventory, which can be frustrating for first timers who may be bidding against others for some of the same homes.
This means an important agent function is to educate first-time buyers to expect competition, explained John Updike with Roy Wheeler Realty Co. He advises his buyers “if you lose out on the first offer, keep plugging away.” It is important to “be proactive and stick to it,” he added.
A year ago a first-time buyer wanting to live in Charlottesville City or Albemarle County might have been able to find a property under $250 thousand or even close to $200 thousand. Rob Alley with RE/MAX Realty Specialists sold a two bedroom home on Druid Avenue for $245 thousand a few months back. An investor bought the home for $105 thousand, repaired it and updated the floor plan making it appealing and affordable for some lucky first-time buyers.
Today buyers looking in the City or in Albemarle County may be fortunate to find what they want under $300 thousand, Updike said, adding he is looking forward to spring when more homes will be on the market.
First-time buyers willing to live in an attached property may still find a few affordable townhomes on the market in Albemarle. Updike referenced some in Crozet, outside of Old Trail, and White described some at Pavilions of Pantops currently on the market at the $270 thousand price point, as well as a few in the mid-$200 thousands at Sunset Overlook Townes near the new 5th Street Station.
If you are a first-time buyer willing to commute a ways to a Charlottesville-area job, or one who works out of their home, there are also affordable homes further out, some with acreage.
Updike recently showed a $233 thousand home in Fluvanna County to a young couple, and other agents report availability in surrounding areas such as Madison or Nelson Counties.
One popular, nearby community is Scottsville where first-time buyers can still find homes and be relatively close in. Often they have grown up in the area and decide they love it too much to leave, explained Debi Dotson with BHG Real Estate III – Glenmore. She has worked with a number of first timers this year who settled in Scottsville and now commute to Charlottesville for jobs.
Other possibilities include Orange County where Keller William’s Tom Woolfolk described an active market in the $150 thousand to $200 thousand price range which, he says, “will always do well if the house is decent.” Orange even has a few options near $100 thousand, but first timers should be aware they may not be in a condition that is acceptable to lenders.
For those buyers willing to drive over Afton Mountain, Augusta County, where the median sales price was $163,515 the end of 2017, has much to offer first-time buyers as well.
If you are a Millennial or other first-time buyer ready to make the move into your own home, now is a great time to go for it. Interest rates remain low and prices, while rising, are still reasonable. Call your lender and your agent today. They will walk you through the process and help you manage any challenges so you can get moved and start enjoying your new home.
Celeste Smucker is a writer and blogger who lives near Charlottesville.