Weekly mortgage Q&A: Advice for first-time homebuyers in a tough market

1
Peathegee Inc/Getty Images

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for

This spring promises to be an especially aggressive homebuying season, which could make things more complicated and confusing for first-timers. To get you ready for what’s going on out there, Bankrate spoke to Darrin English, senior community development loan officer at Quontic Bank. He specializes in helping people in low- and moderate-income communities to become homeowners.

The interview has been edited for length and clarity.

 What are the current housing market conditions and what do they mean for first-time buyers?

We’re in a situation where there’s very limited inventory for first-time homebuyers. Home prices are at their highest point. Real estate moves in ebbs and flows, and right now we’re at the height of the market. We’ve got a situation where you can have 10 families competing for one home. Things like removing contingencies and other negotiating tactics are swaying sellers to select a potential buyer. It’s a pretty aggressive market.

What are the best ways for a new homebuyer to compete?

A prequalification is number one. You must be prequalified by a reputable lender, one where you can establish that you have the necessary assets for the down payment. Having the necessary assets and a really strong prequalification letter are key.

I always recommend that first-time homebuyers attend a first-time homebuyers webinar or seminar. This is where they can understand the homebuying process. They can hear from a variety of lending institutions to understand what programs are best for them. If you can tune in online, you can often find these by way of your current bank or an online search for HUD-sponsored, not-for-profit first-time homebuyer webinars.

 

 

Are there assistance or other programs new buyers should know about?

Most folks don’t understand that every bank has a community development loan program at their bank. There’s usually a very small group of loan officers that has the ability to offer incentives to homebuyers. I could speak specifically of what Quontic bank will offer. If you were to borrow conforming loan size loan limits from Quontic bank, we’ll give that applicant 2 percent of the amount they borrowed. For example, if you borrow $500,000 from Quontic, we’ll give you $10,000 that you can put to your closing costs. When a bank gives an applicant grant funding, those funds can only be applied toward closing costs, but if you obtain funds from a government entity, you can use those funds toward down payment and closing. Those grants are very valuable to first-time homebuyers.

Editor’s note: Read more from Bankrate about first-time homebuyer assistance programs.

What’s the outlook for the market? Where do things go from here, and will it get easier for first-time buyers?

The reason why the market has been so robust is that interest rates have been at an all-time low. Now they’re starting to inch up. Conforming rates are now 2 and 7/8 to maybe 3 and 1/8. The last stimulus check that went out was enough to stimulate the economy to the point that Wall Street felt that rates had to be adjusted. Next quarter we expect these rates to go up dramatically. They could go up on conforming loans into the 4 percentile. That could slow down purchasing. We’ll be moving into a different phase of the real estate cycle. Foreclosures and evictions, there’s been a moratorium on both of those. Once enough people become vaccinated, you’re going to see a lot more inventory at higher rates. This market will slow down and there will absolutely be a return of inventory at lower prices in the next 12-24 months.

Learn more:

 

Written by
Zach Wichter
Mortgage reporter
Zach Wichter is a mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.