Are things getting easier for first-time home buyers in 2022?

October 4, 2022 - 4 min read

Is it getting any easier to buy a house?

Opinions on the housing market vary widely. But according to mortgage expert Ivan Simental, things are generally improving for home buyers.

Between rising mortgage rates and a year of skyrocketing home prices, some would-be buyers have pressed pause on buying a home. But recent market shifts have turned the tide in favor of those who are still in the market.

On a recent episode of The Mortgage Reports Podcast, Simental explained why now could be a good time for first-time homebuyers to take the plunge. Here’s what he had to say.

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Competition is dwindling

High demand and low supply have contributed to rising home prices in recent years. With so many buyers entering the scene — and not enough homes to accommodate them — prices jumped. But the competition is dwindling in some areas, according to Simental.

What does this mean for homebuyers?

Simply put, you don’t have to compete with as many people for a property. Over the past two years, it wasn’t uncommon for a seller to receive 20 or more offers on their home. Now, they might only receive three to five offers. Less competition increases your likelihood of making a winning bid.

In addition, today’s buyers are less likely to offer more than the list price, noted Simental. Offers “way above” asking were a common occurrence last year, with some buyers offering as much as $50,000 to $100,000 over the list price. This priced out many first-time home buyers, making it difficult for them to compete without a cash surplus.

Rising mortgage rates have also played a role in dwindling competition. Rate hikes make it more costly to purchase a home, which has scared off a lot of buyers. But if you’re willing to get creative, there are strategies you can use to beat rising interest rates and still get into the home you want.

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Sellers are more willing to negotiate

Fewer homebuyers mean that some properties will sit on the market longer, which is bad news for motivated sellers.

To speed up a sale and attract interest, some sellers are more willing to negotiate. Depending on the circumstances, homebuyers might get a property below its list price. Or they might be able to negotiate seller concessions like closing costs assistance.

Finally, today’s sellers are more likely to accept contingent offers than they were a year ago. This gives buyers the opportunity to write important protections into their purchase contracts, like appraisal contingencies and clauses that oblige the seller to pay for any major repairs.

Credit requirements have loosened since the pandemic

Some mortgage lenders imposed tighter credit requirements during the pandemic. For example, some lenders increased the credit score requirement for FHA loans from 580 to 600 or 620. However, lower FICO requirements are back, said Simental.

Along with flexible credit guidelines, low-down-payment loans also make the path to homeownership easier. Conventional loans allow down payments as low as 3% to 5%, FHA loans start at 3.5%, and qualified buyers can use a VA loan or USDA loan with zero down.

There are even down payment assistance programs, some of which are reserved specifically for first-time homebuyers. Assistance can come in the form of grants (which buyers don’t repay), zero-interest loans, forgivable loans, and deferred loans. Eligible buyers can use these funds to cover their closing costs and/or down payment.

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How to prepare for buying a home

While it’s getting easier in some ways to buy a house, Simental emphasized the importance of getting your financial “ducks in a row” to make sure you’re able to qualify for financing. Here are a few key steps you should take as you’re preparing to buy a house.

1. Check your credit

Most mortgage programs have a minimum credit score requirement, which can range from 500 to 700 depending on the loan. If you’re thinking about buying, now’s the time to check your credit reports and credit score. If necessary, take steps to raise your score before applying for a home loan. You can help improve your FICO score by paying bills on time, paying down credit card debt and loans, and disputing inaccuracies on your credit report.

2. Gather your proof of assets

You’ll need to provide your mortgage lender with a lot of financial documentation. This includes copies of your most recent bank account statements, investment account statements, pay stubs, and tax forms (W-2s for full-time employees or personal tax returns for self-employed borrowers). Your lender uses this information to gauge how much you can afford for a monthly mortgage payment and, by extension, how much home you can buy.

If you don’t have enough cash in savings for your upfront mortgage costs, most loan programs allow you to use gifted money or down payment assistance for your down payment and/or closing costs. Gifts must be properly documented with a gift letter and must come from a family member or an approved organization.

3. Maintain stable employment

Your employment and income must be stable, too. Lenders typically require at least two consecutive years of employment with the same employer or within the same field. If you’re self-employed and using business income for qualifying purposes, you’ll provide two years of business tax returns.

It’s best to avoid making any big financial changes before you buy a home — including changing jobs. If you’re moving to a new role in the same field or getting promoted, that shouldn’t pose an issue. But quitting or switching to an entirely new field could derail your mortgage application.

Your next steps as a home buyer

Simental closed with a reminder for first-time buyers: Your starter home doesn’t have to be the perfect home.

Some buyers create a long list of must-haves for their first purchase, yet they only plan to live in the home for two or three years. Therefore, he recommended a “much smaller” list of must-haves and advised buyers to think about what they absolutely need. “Nine times out of 10, your first home is not your forever home,” he said.

If you’re ready to start the home-buying process, connect with a mortgage lender. Your loan advisor will help you determine which mortgage program you qualify for and how much house you can afford.

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Valencia Higuera
Authored By: Valencia Higuera
The Mortgage Reports contributor
Valencia Higuera is a freelance writer from Chesapeake, Virginia. As a personal finance and health junkie, she enjoys all things related to budgeting, saving money, fitness, and healthy living.