If you’re hoping to buy a home this fall, you may need to get a little creative — particularly if you’re on a tight budget.
The shortage of homes to buy continues this fall, with the most recent Bright MLS data showing that active listings — which include all homes on the market in the Washington area — were down 3.3 percent in September 2018, compared with September 2017.
Two more MLS indicators show that buyers are likely to face competition for homes. First, the average number of days a home stays on the market declined again in September to 17 days, lower than September 2017′s 20 days. Second, homes are selling on average for 97.7 percent of the seller’s asking price.
For first-time buyers at lower price points, the competition can be even more fierce. While waiting to save more is one strategy some buyers adopt, home prices are anticipated to climb another 5.1 percent between now and July 2019, according to CoreLogic, an Irvine, Calif.-based property information provider. The other challenge is interest rates are rising slowly and steadily. With the positive signs in the economy, including jobs numbers, the Federal Reserve is expected to keep moving rates up about a quarter of a percent each quarter. The same mortgage next summer will cost you a lot more than today so waiting has two strikes against it.
Ideally, buyers have plenty of funds for a down payment, a sizable budget and multiple potential properties to choose between. Realistically, most buyers need to stick to a comfortable housing payment and make compromises to become homeowners, such as switching neighborhoods or downsizing their expectations. Down payment assistance programs may be available depending on your income and location.
Here are six strategies for buying your first home in a difficult market:
• Share your equity. Shared equity investors, such as companies like OWN Home Finance and Unison, will put up some of the cash for your home in the form of a bigger down payment. That will make your loan balance — and therefore your mortgage payments — smaller. The catch is that when you sell the property, you’ll need to share some of the profit with the investor.
• Bring in co-buyers. A co-buyer, which refers to a non-married buyer listed on the sales deed, could include a partner, a friend or a relative who will share your housing expenses. According to ATTOM Data Solutions, an Irvine, Calif.-based real estate data firm, nearly 18 percent of all home sales during the second quarter of 2018 included a co-buyer, a figure that also includes shared equity deals. Co-buyers can share your house or just share expenses; either way, it’s essential to have all the legal and financial arrangements in order.
• Buy a duplex. While they’re not always easy to find and typically require a bigger budget, a duplex can be a smart move for a first-time buyer. You can live in half of the house and rent out the other half to help pay the mortgage. You’ll build equity in the property over time and can keep it as an investment property or have a larger place to sell in the future.
• Buy a larger home. Even if you only need one or two bedrooms, it may be smart to buy a home with an extra bedroom or a legal basement that you can rent to a tenant. The added income from the housemate can make your housing expenses more affordable. As your income rises, you can decide whether you want to keep a tenant or live in the extra space.
• Search in a lower price range. If you’re not finding what you want in your price range, consider looking at the next tier down for a fixer-upper. A place that needs cosmetic work could be more affordable and give you a chance to add value with home improvements. Mortgage loans are available to wrap your renovations into one loan along with your home purchase.
• Search in a higher price range. While no one should leap too far above their preferred price range because of the danger of becoming overextended, looking at the next level of homes could be beneficial. You may see something that still fits your comfort level for a housing payment that you hadn’t seen because of your price parameters. For example, if you need to borrow $400,000 at 4 percent, your monthly principal and interest payment would be $1,910. Borrowing $420,000 at that same rate would cost $95 more per month but could help you find the right home.
Before you get too creative in your thinking, consult a mortgage lender and a real estate agent. Both can provide you with essential information about your loan qualifications, your budget and your housing options.
Jon Coile, chairman of Rockville-based multiple-listing service Bright MLS (formerly MRIS) and president of Champion Realty in Annapolis, Md., writes occasional commentary on the Washington area housing market.
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