Through 2021, a Boston couple in their early 30s -- a software engineer married to a therapist -- struggled to buy their first house. After their baby daughter was born, their two-bedroom apartment felt cramped, and the urge to own became compelling.
But the couple’s strenuous efforts were to no avail. In 11 multiple bidding contests, their offers were rebuffed by the sellers in favor of still higher bids.
“The whole year has been an emotional roller coaster, with lots of ups and downs,” says Richard Rosa, the couple’s real estate broker.
Housing economists are predicting that mortgage rates could rise significantly in 2022 due to Federal Reserve attempts to contain inflation. Meanwhile, home prices continue to increase. Yet many wannabe owners like the Boston couple remain determined.
“Lots of young people are cautiously optimistic that 2022 will be the year they’ll finally get the chance to buy,” says Rosa, president-elect of the National Association of Exclusive Buyer Agents (naeba.org).
Rosa says there’s plenty that aspiring buyers can do to strengthen their hand for future competitive bidding situations.
“You want to show sellers you’re ready and able to reach the closing table with your offer. Besides getting mortgage pre-approval, I recommend you provide key financial documents to your lender for prior review. These include your W-2s, bank statements and tax returns,” says Rosa, who heads an independent realty firm.
Here are a few other pointers for would-be buyers:
-- Try to reduce your debts with extra income.
According to federal government data, overall credit card debt is now relatively stable. But student loan debt continues to soar, and now exceeds $1.5 trillion.
For anyone seeking to progress financially, cutting debt, including credit card balances, is an absolute must.
“The interest rates charged on most credit cards are ridiculously high. All that interest can eat you alive,” says Jim Blankenship, a longtime financial planner who has advised numerous young clients on their real estate plans.
Unfortunately, many young adult tenants make only enough money to meet necessary living expenses, particularly if their rents have risen. They’re limited in their capacity to pay off debt or generate savings for a down payment. Given this reality, Blankenship recommends many would-be buyers consider augmenting their income.
“Think about taking a second job. Or try to get overtime at your regular job, assuming overtime is available,” he says.
He urges clients who’ve accumulated too much debt to think positively about changing their financial habits rather than dwelling on how they ran up so much debt in the past.
-- Seek to slash your nonessential expenses.
Most young adults who live in rental units are very sensitive to their monthly housing costs. But they’re typically less aware of how much money they’re spending to eat out at restaurants.
“It’s amazing how eating out costs can really add up quickly,” he says.
Those in their 20s may also spend what he calls “shocking sums” on clothes, as well as entertainment. He also advises would-be buyers to comb through a recent month’s worth of spending to realize where they could cut back.
“I recommend you look closely at your cable bills to see if you really need all those channels. Also, look at that fitness club membership you never use,” Blankenship says.
-- Consider selling a car to help build your savings account.
A new or nearly new car is often the first major purchase for many young adults. Usually, the car is financed with a hefty loan. But mortgage lenders often frown at the sight of a prospective homebuyer driving up in a late-model vehicle.
“Lenders know that a couple who’s financing one or more cars will likely find it tougher to qualify for a home loan,” Blankenship says.
Even if you drive an older vehicle and have no car loan, chances are you’re paying a substantial amount for car insurance and repairs -- not to mention gas.
Blankenship says it’s a wise idea for young couples bent on homeownership to talk through the possibility of selling one vehicle. This could be less limiting than you imagine, especially if one or both adults in the household expect to continue teleworking indefinitely.
-- Ponder the possibility of shared housing on a temporary basis.
Moving in with a family member for a year or so could help you cut rental costs substantially. Perhaps an elderly aunt who owns a large house would let you live there rent-free in exchange for help with grocery shopping and trips to the doctor.
Sid Davis, a Utah real estate broker and author of “A Survival Guide for Buying a Home,” says he’s worked with a number of young buyers who’ve obtained substantial savings through a housing-for-services swap.
“You don’t have to live with your relative for many years. Just doing so temporarily could help you save sufficiently to pay down enough debt to greatly improve your financial picture,” he says.
(To contact Ellen James Martin, email her at email@example.com.)