5 Figures That Highlight the Challenges First-Time Buyers Face

If you’ve ever bought a home or considered buying a home, you know that it’s not the easiest process. Many homeowners are first-time buyers themselves and have no idea what they’re doing, but there are also many who have bought and sold multiple properties over their lifetime who still don’t get it right the first time around. Whether you want to avoid making these mistakes yourself or simply want to be prepared before you start looking at houses, here are five figures from 2015 that highlight the challenges that first-time buyers are facing in today’s real estate market.

5 Figures That Highlight the Challenges First-Time Buyers Face

1) The cost of a down payment

Down payments can range anywhere from 5% to 20% of a home's purchase price, and that percentage is a lot higher for first-time buyers. For example, let's say your down payment is 10%. You would need $30,000 in cash or liquid assets in order to afford a home priced at $300,000. And that doesn't include closing costs! If you're not able to come up with these funds on your own, you might have to settle for something less expensive or put more money down on your mortgage. It may seem like it's going to be an uphill battle no matter what you do but don't worry: there are ways around this obstacle! One option is to look into getting a HELOC (home equity line of credit) so that you'll be able to access the funds when you need them. 

A HELOC will allow you to borrow up to 80% of the value of your home which means that even if you only make a 5% down payment, you'll still have 75% equity in the property and all your monthly payments will go towards building that equity! Another option is taking out an interest-only loan where any monthly debt repayment goes straight towards paying off any interest before anything else. Again, this method won't get you closer to owning a house outright but it will help reduce how much time and effort is spent saving for that big down payment.

2) The average credit score

The average credit score is 695. This means that if you are trying to buy a home or car, a lender will see your score and think it is too low to offer you a loan. 

There are many factors that affect your credit score: 

  • - how many times you have applied for credit in the past two years; 
  • - how much debt you currently have; 
  • - how much debt you had in the past two years; and 
  • - whether or not you have any late payments on your credit report. 

Just because your score is below 700 does not mean that you can't get a loan from a lender but there may be higher interest rates, fees and monthly payments associated with your loan than there would be for someone with an average or higher credit score.

These figures highlight some of the challenges first-time buyers face when looking to purchase their first property.

3) The average debt-to-income ratio

The debt-to-income ratio is a measure of how much money you owe to your creditors for every dollar of your monthly gross income. This ratio can be used to assess whether or not you will have difficulty repaying future obligations on time. The higher the debt-to-income ratio, the greater the risk that you will have difficulty paying back your creditors in a timely manner. 

The average debt-to-income ratio for first-time buyers is 33%. With an average debt-to-income ratio of 33%, it is easy to see why first-time homebuyers may feel as though they are running out of options when it comes to buying their dream home. Luckily, there are other things that you can do such as opting for a lower-priced property or even renting. One thing's for sure: buying your dream home should not take away from living life and accomplishing personal goals!

4) The average mortgage rate

This post is focused on some of the challenges that first-time buyers are facing. The average mortgage rate has gone up. In fact, it's gone up over a per cent in just a year's time. With all these changes in rates, who knows what will happen to house prices and demand? If you're looking to purchase your first home and these numbers sound scary to you, don't worry! There are steps you can take to help make this process easier for yourself. One thing you should consider is raising your credit score. 

Improving your credit score can also increase your chances of being approved for a loan as well as help reduce the interest rate you pay each month. Another helpful step to take is investing in stocks or bonds. Stocks have historically had higher returns than other investments, which means that if you invest wisely now then when you buy a house there may be more money available for closing costs or repairs if needed.

5) The average home price

The average home price increased by 3.4% in 2016 and homeownership has become a challenge for first-time buyers. Nationwide, median home prices are $225,000 which may seem affordable to some but not to others. In places like Boston, Chicago, Denver and San Francisco you would need over twice that amount ($325k+) just to be able to afford an average-priced house. Buying power: In 2015 according to one study, 60% of Americans didn't have enough money saved up for a 20% down payment on an average-priced house while 54% of Millennials said they couldn't afford one at all. 

Location: Where people live is also something else that influences their ability to buy their first home with factors such as how expensive homes are near where they live or if there are jobs available nearby playing a part too.