This story originally appeared on LX.com
On June 1, I purchased my first home. And, yes, I did it in this ridiculous market. And no, I'm not some rich business owner, Silicon Valley engineer or the child of wealthy parents.
And yes, it's possible for you to do the same.
My new place is a (mostly) move-in-ready 1,700 square foot, three-bedroom, three-bath townhome that I purchased for well under $300,000 dollars (and under list price) with just over 5% down.
Just two years ago, those details would be pretty dull. But during a time when mortgage rates are at an all-time low contributing to high competition, demand far outweighs supply in a state where the move-in ratio is 7:1 and homes go for well-over listing (often in cash) with no contingencies, this is far from normal. But through a bit of strategizing, I did it.
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As a matter of fact, it’s gotten so hard to win a bid, one woman “included in her written offer a pledge to name her first-born child after the seller” and still lost, according to Glenn Kelman, the CEO of real estate brokerage Redfin, who laid out just how ridiculous this market is for homebuyers in a Twitter thread.
While winning a bid on a home is difficult enough, loan financing is another headache. According to CNBC, “the income needed to qualify for a loan today is also far higher than it was” in 2006.
And then there are the investors with the money to buy out most offers with cash.
This is where you’re probably wondering how in the world I was able to find a reasonably-priced home, requiring minimal maintenance in the midst of this chaos.
In addition to a hope and many prayers to the man (or woman) upstairs, there are a few steps I took to prepare myself for the real estate fight.
And to see if what I did might be helpful for others, I spoke to Florida realtor Tadas Andriekus of eXp Realty, LLC for his take. The team Andriekus is on ranks number three out of ten on the 2021 list for Latino realty teams by The National Association of Hispanic Real Estate Professionals .
His advice with regard to the Florida real estate market and others like it is below, condensed and edited for clarity.
Build That Credit
Before I had ever thought about purchasing a home, I started on a serious campaign to fix my credit. In 2016, I checked my credit reports and disputed any issues that didn’t seem correct, started to aggressively pay down one of my student loans and paid off my credit cards, making a vow to use one card and pay it off in full each month. Over the next couple years, I was able to bring my credit score from a 640 to 822, well above what’s needed to qualify for a housing loan.
Andriekus: Having good credit is not only mandatory for traditional loans, but it is very important to get it as high as possible before purchasing a home. The higher the credit score the lower the interest rate the lender will be able to offer.
Having said that, we are experiencing the hottest market that we have seen in decades. To have a strong advantage in winning a bidding war, your best bet is to have as high of a down payment as possible and extra money to cover any gaps between purchase price and appraisal price and this can outweigh your credit score.
Save That Money
I had never thought owning a home was in my near future thanks to the expensive city I lived in and the crazy amount I owe in student loans. But when the government put a no-interest hold on federal student loan payments in March 2020 and later extended it, I suddenly had an extra $800 dollars a month that I could put toward a long-term investment as opposed to the feather in my cap of saying I paid off my loans in 20 years.
By May 2020, I joined the flock of New York City transplants that fled the city for cheaper areas and went back to my childhood home in Orlando, Florida to live with my family. A couple of months later when I decided to make the move permanent, I gave up my apartment and saved nearly $1,700 in rent (but my mom required me to still cough up $400 a month so I didn't get too comfortable). I admit this isn't an option for everyone, but if you have a family you can live with (and tolerate) for a decent amount of time, the money you can save is worth it.
With a new $2,500 a month in my account, saving 5% for a home finally started looking like a possibility. I was able to carve out enough in savings to at least have my down payment and closing costs covered.
Andriekus: There are many different programs for individuals that qualify to help reduce the amount of cash you have to bring to a closing. But, the more the better.
In a regular market, if you can afford to put down 20% or $60,000 on a $300,000 home and negotiate closing costs, you would be in a very strong position. In a peak market like right now where the buyers have a lot less room for negotiations, be prepared to cover all your closing costs (an extra 3-6% of the purchase price) and also offer the sellers to pay over appraised property value (up to what you can afford).
In simple terms, the more you give and the less you demand, the higher chance of your offer being chosen.
It is always recommended to discuss your finances with an experienced lender to find the best solution that would fit your needs.
Get Multiple Pre-Approvals
When you apply for a mortgage loan, you have a couple of weeks to shop around without taking another hit to your credit, so I applied and received multiple pre-approvals from large financial institutions to compare credits and offers. And I was told it helped to show sellers I was ready to start the lengthy loan approval process and that I have multiple big-name banks that want to work with me.
Andriekus: Submitting multiple Pre-Approval letters can help sellers see that you are a strong and qualified buyer. But I would recommend choosing one lender that can offer you the best interest rate and more lender credits.
A good agent that represents the seller will contact your lender of choice and ask qualifying questions to get more confidence in you successfully closing on the transaction.
Set That Budget and Stick With It
When I started searching, I decided that the only way I’d truly feel comfortable with the responsibility of homeownership was if my total monthly out of pocket cost for the home (this is the sum of my mortgage, mortgage insurance, homeowners association dues and home insurance) was at or around what I was paying in New York for rent.
Once I set a number, I stuck with it and refused to look at anything that would put me over. And to avoid some of those millennial regrets on housing maintenance, once I closed on my home, I added low-cost supplemental insurance to cover major repair expenses for systems like heating and cooling, water heater and electrical wiring.
Andriekus: When purchasing a home it is important to be aware of the costs that are associated with homeownership. I notice a lot of people buying homes with their last bit of savings and not putting aside money for repairs.
Your major repairs that would be the most costly consist of items such as, the roof, A/C unit, plumbing, electrical and structural. Buying a home warranty can help reduce the cost of repairs, but always calculate that into your budget.
Having a strict budget will not only help you with your finances in the future, but it will also help you narrow down the homes that are a good fit for you and make the home buying process much easier for you and for your wallet. It will also help reduce the potential risk of not closing on your dream home. Keep in mind that while you are in the process of purchasing a new home, do not open any new credit cards or loans such as auto financing. This will cause multiple complications when applying for a mortgage.
Keep Your Options Open
I did my research and found a location I really wanted to live in. It was a small Orlando-adjacent area with an urban city feel and, unfortunately, an urban city price tag.
When I tried to look into homes there, I found I had to go way over my budget to even be taken seriously. And even still the homes available to me would need to be entirely gutted before I could live in them. I had to accept that having my slice of NYC in Florida might have to remain a 45-minute drive away, so I expanded my search.
Andriekus: It's good to be realistic and decisive about what you are looking for. For example, sometimes it may be a good idea to purchase a home that is below your budget and renovate it to your liking, rather than to look for a finished product.
Get Used to Hearing “No”
I put in several offers during my search and was devastated to hear “we’ve received multiple offers and yours did not make the cut” or “Unfortunately, you were outbid by another buyer” time-and-time again.
Then, I got used to it. I put in an offer and stopped getting attached. I almost gave up quite a few times, especially after this surprisingly spacious 1,100 square foot 3 bedroom stationed in front of a serene man-made lake and Florida room went to a cash offer despite my then realtor's best efforts to sell me to the listing agent.
But I kept pushing.
Andriekus: It is very important to keep your options open and don't lose hope after losing out on a home you liked. It is also important to know that in such a competitive market, buying a home might not be for everyone. Discuss with your agent and lender whether waiting for a dip in the market and buying in a year or two might be a better option for you. Most importantly, be patient.
Learn How to Navigate the System
A colleague of mine told me she had a friend who got a home after writing a personal letter to the seller. I was skeptical because I doubted any letter I wrote could be worth more than cash, but I needed all the help I could get.
Soon after, a friend of mine went into contract on a condo that had been on the market for a couple of weeks (which is forever in this market and suggests the seller might be ready to bend a little) and offered only $2,000 over appraisal on her appraisal addendum. No one wants to start out in negative equity on a home, but in a sellers’ market like this one, something’s gotta give.
If these two things worked for other people, I figured they were worth a try.
Andriekus: Writing a letter is a bit of a slippery slope. You have to be careful not to write or mention anything to do with protected classes (race, color, religion, national origin, sex, disability, and familial status) which can cause major liability problems and is against federal law. A good letter should include things you like about the material facts of the home and why it is the perfect fit for you.
In a market like this one, it is advised to offer sellers over appraised property value to increase your chances of winning. Keep in mind that in the state of Florida, a person cannot be forced to sell any property that belongs to them. So if you find yourself in a situation where the lender's appraisal came back below what the seller's expectations were, they have the right to disagree and go back into negotiations, regardless of what was initially agreed.
There are steps you can take such as asking for a new appraisal or reviewing the current one to make both parties satisfied, but if neither party is willing to budge, don't be afraid to walk away and go back to looking at other homes.
It is very common in today's market for contracts to get canceled because of this specific reason. Sellers will want top dollar for their home and lenders will not finance more than their Loan To Value ratio allows. This leaves many buyers with a decision to make, whether they can afford to bring in more money to the closing table or back out and look for something else.
Discuss the options with your agent and lender and decide what is the best route to go in your specific situation.
Stick to the Plan
When I went to view my current home, I instantly fell in love. It had been on the market for several weeks, so it felt like there wouldn’t be much competition and that I might be able to get the seller to work with me a bit more than others had in the past.
They had only one other offer and were about to just go with it, but my realtor was able to get them to consider me as well.
Some might think townhomes and condos are easier to get, but I had recently been outbid on a townhome in the University of Central Florida area mere days after it hit the market. And weeks prior, I lost out on a beautiful one-bedroom condo in that same urban area I mentioned earlier, so I wasn’t necessarily optimistic.
In addition to being listed under my budget, my current home is in an area with community options that make it great for resale and rental. After the inspection revealed only a few minor issues, I couldn’t see a reason why it sat on the market for so long aside from the fact that the list price was way too high for a place that had hardly been upgraded since it was constructed 15 years ago. Its open floor plan and spacious bedrooms made it perfect for entertaining and future rental potential. It needed some interior cosmetic fixes, but nothing I couldn’t work with.
So I asked my realtor to put in an offer at list price, with a contingency of $2,000 over appraisal (the highest I would ever be willing to go) and, for good measure, I threw in that personal letter.
By the next day, the seller took my offer and I was in!
But I had no idea that getting into a contract was just the beginning of a whole new set of stress and headaches.
Andriekus: Whether it's easier to buy a condo or townhome than a single-family home will depend on your financial situation. As a whole, the demand for single-family homes has always been higher in the Florida market. So if your budget and credit restrict you from being competitive for a single-family home, other options such as condos, townhomes, or duplexes might be more fit.
If you are a first-time homebuyer, don't be scared of these types of properties. They make great starter homes and will help you understand what it is like being a homeowner and help you make a better decision when the time for an upgrade comes.
When it comes to looking into homes that have been on the market longer than usual for a better shot, it depends on the reason they’re on the market for that long.
Was there a contract that fell through, if so, why? Is the home in an undesirable location or condition? Is it overpriced and the seller won’t accept a fair offer?
There are many reasons a home can be on the market for longer than the average trend. It’s always worth a look and it doesn’t cost anything to make an offer. Your realtor should be able to answer that question and help you decide if this is a reasonable contract to pursue.
After all was said and done, I became a first-time homeowner in a market I never knew I’d be able to compete in without signing my life away or wishing I hadn't bought a home at all as other people in my age group have felt. A new Bankrate survey found that two-thirds of millennials are already regretting their purchases in a market that often requires exhausting all options like “sight-unseen offers and contingencies waived” to snag a house.
And millennials were “the most likely to be unhappy with their new home’s physical characteristics.”
That’s no surprise.
Desperation often leads to rushed decisions, regret and, in my case, consideration of a decades-old home with an eight-foot-high ceiling that sits directly next to an obnoxiously loud water treatment plant and thinking “all” I needed to do to make it livable was a ridiculously expensive roof renovation (I hated that flat look.).
Thankfully, a realtor convinced me to have more sense than that.