Challenge Accepted: How renters can overcome barriers to homeownership - The Washington Post

Latressa Cross came close to giving up on her dream of homeownership in 2023 after being outbid multiple times. Many homes were unaffordable, too, in Alexandria, Va., where she had lived for 25 years.

“I looked at condos because I thought they would be more affordable and available, but sometimes the monthly condo fees were as high as $1,300,” said Cross, a finance and human resources manager for a nonprofit association.

Her real estate agent, Anita Vida-D’Antonio with Coldwell Banker Realty in Alexandria, suggested looking farther south for affordability.

“I looked at Lake Ridge in Prince William County, but everything was selling for $30,000 or $40,000 over the asking price,” Cross said. “I only go into the office twice a week, so giving up my 10-minute commute when I lived in Alexandria doesn’t matter as much.”

After four months of searching, Cross purchased a three-level, three-bedroom townhouse with three bathrooms in Woodbridge.

“My lender approved me for $450,000, but I spent $388,000 on the house,” Cross said. “Now my daughter can walk to school, too.”

Like many first-time home buyers, Cross faced the triple threat of high prices, high mortgage rates and a lack of homes for sale. Buyers today find multiple ways to overcome that trifecta of obstacles, including some tried-and-true methods.

“First-time buyers need to be ready for a longer process, to look at a lot of properties and to possibly lose out on offers,” Vida-D’Antonio said. “This market isn’t for the faint of heart.”

Adjusting priorities: size, condition and location

While Cross became a homeowner by dropping her preference for Alexandria and swapping to a townhouse with lower fees instead of a condo, nearly every buyer must compromise on something. The top priority for 56 percent of today’s buyers when choosing a home is price, according to the 2024 Consumer Survey by Coldwell Banker Real Estate, followed by location (50 percent). Condition — either move-in ready or a fixer-upper — is a distant third priority (27 percent), followed by size (23 percent).

“To offset the issues of affordability and the lack of selection, buyers either need to shrink the things they want, up their budget or change the location where they’re looking for a home,” said Ron Sitrin, an agent with Long & Foster Real Estate in D.C.

Patty Smith, an agent with Coldwell Banker Realty in Alexandria, suggests that first-time buyers start their search by thinking about their lifestyle for the next two to five years. Recognizing that they aren’t buying their “forever home” can take some of the pressure off, she said.

“After you think about how you like to spend your time, you can decide if you would prefer a smaller space so you can get into the neighborhood you want,” Smith said. “If a larger space at a lower price is more of a priority, you can think about whether you want to look farther away.”

For one couple Sitrin worked with recently, switching Maryland counties from Montgomery to Howard provided an acceptable commute, access to good schools, more choices of homes and a higher likelihood of an accepted offer.

“They ended up getting a bigger house and more land for their money, plus a great school district,” Sitrin said. “Moving from one market that has fewer homes, such as part of Montgomery County, to a different neighborhood, such as in D.C., can make it easier for first-time buyers to find something to buy.”

Besides widening a home search to more locations, buyers may want to consider a townhouse instead of a single-family home for affordability and to skip condos because of their fees, Vida-D’Antonio said.

“A fixer-upper can be an option for first-time buyers if they pay less than market value and have the funds to pay for renovation costs,” Smith said. “Buyers I worked with recently found a home in Southwest D.C. and negotiated $100,000 off the price because the kitchen and bathrooms need renovation.”

Smith warned that buyers need to be sure they have the funds for renovations and a clear understanding of what’s involved. She recommends consulting a licensed contractor to get a realistic estimate before making an offer, as well as an estimate from a real estate agent about the return on investment in different neighborhoods.

Other trade-offs some buyers make, Sitrin said, are in the size of the lot or the location, such as on a busy road.

“Most people don’t expect to be able to buy the perfect home,” Sitrin said.

Financial solutions to solve buyer challenges

While first-time buyers often talk to a real estate agent first, Brandon Snow, executive director of mortgage strategy for Ally Bank in Charlotte, recommended they start with a lender to understand their budget and the relationship between mortgage rates and the monthly payment.

“With the inventory of homes for sale so low, buyers need to be ready to move fast,” Snow said. “They should get a full preapproval before looking at homes.”

Ally’s “verified preapproval,” which is similar to programs offered by other lenders, requires fully documented financial information to provide certainty about the ability to get a mortgage.

The biggest obstacle for many first-time buyers is the down payment, Snow said, followed by the debt-to-income ratio, which compares your minimum monthly payment on all recurring debt — including your housing costs — to your gross monthly income.

“The average debt-to-income ratio is in the mid to high 30s, but lenders have some flexibility and may go up to the mid-40s,” Snow said.

Snow said that down payment assistance programs, which can be researched at DownPaymentResource.com, have become more popular in recent years. Parents and other relatives often contribute to the down payment or closing costs for first-time buyers. Thirty-nine percent of home buyers received down payment assistance, according to a 2023 Lending Tree survey, with 35 percent of them receiving help from a relative or friend.

“First-time buyers often believe the myth that you need a down payment of 20 percent to buy a home,” Snow said. “But there are loan programs through Fannie Mae and Freddie Mac that only require 3 percent down, FHA loans with 3.5 percent down and VA loans with no down payment required.”

Typically, home buyers need to pay mortgage insurance if they make a down payment of less than 20 percent, but some buyers may qualify for a program without mortgage insurance, Snow said.

While mortgage rates are higher now than they have been in recent years, borrowers with a higher credit score of 740 to 760 or above typically qualify for the lowest rates, Snow said.

“It’s important to consult a lender early to discuss all your options and understand how you can finance a home,” Snow said. “Rents are high now, too, and home prices are expected to stay high or rise in the future. But if you have funds for a down payment and are comfortable with your income and assets, buying now allows you to gain equity and possibly refinance in the future to a lower mortgage rate.”

Beating the odds to win a bid

The lack of homes is particularly acute at lower price ranges, which means competition can be stiff.

“If they know they’ll face competition, buyers should be especially careful to have their financing fully in place,” Vida-D’Antonio said. “We can also do a pre-inspection before making an offer so that the offer isn’t contingent on a home inspection.”

Parents often step in to help, Sitrin said, either by offering a gift for a down payment or co-signing a loan.

“Parents sometimes tell their kids they will backstop them to help with cash if it’s needed so the buyers can make a non-contingent offer and compete in a bidding war,” Sitrin said. “For example, if the buyers win a bidding war and the appraisal comes in too low, the parents may offer to pay the difference.”

Buying with friends and family

Some first-time buyers opt to combine funds with friends and family members to buy a home. In either case, it’s important to work out the details with an attorney and signed documentation, Smith said.

“I think it’s better to buy yourself and sublet a bedroom to a friend rather than buy together because you never know what will happen in a few years,” Smith said. “In one case friends bought together but then one moved out to live with a partner and the entire situation became very contentious.”

Parents and other relatives can contribute funds or co-sign a loan, but in some cases combining households benefits everyone.

“My husband and I were living in D.C. and were looking at homes in Northern Virginia at the same time that my parents were thinking about moving from New Jersey to the D.C. area,” said first-time home buyer Jennifer Bulkowski. “My parents are retired, and they were looking at condos and townhouses an hour away from where we were looking, so we all realized that it didn’t make sense to move to be closer to us but still be so far away.”

Bulkowski and her husband, who are in their mid-30s and mid-40s, opted to combine efforts with her parents and buy a single-family home in Centreville, Va., together.

“The house has a nice walkout basement with two bedrooms, living space and a fireplace, plus we added a kitchenette and a laundry room,” Bulkowski said.

Bulkowski and her husband’s budget was $600,000 to a maximum of $800,000 but joining forces with her parents allowed them to buy a house for more than $1 million. The two couples shared the down payment expenses 50-50 and all four of them are on the deed.

Flexibility and the support of a knowledgeable lender and real estate agent make it possible for first-time home buyers to achieve their goals, even in a tough market.

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