Creativity Required to Solve FirstTime Buyer Challenges

By Michele Lerner

When a young couple wanted to buy their first home in Ocean County, they weren’t willing to compromise on their preferred location or home size, said Louisa Sagarese, a Realtor® with RE/MAX Revolution.

“Their compromise was to have a friend move in with them to share the house expenses,” said Sagarese. “Every first-time buyer has to make compromises right now, mostly because there’s just so little inventory and people are getting outbid.”

Realtors® across New Jersey and in other regions of the country who work with first-time buyers are all too familiar with the hurdles that face this cohort: limited inventory, steep competition, high prices, and higher mortgage rates compared to most of the past decade. Yet many first-time buyers succeed in becoming homeowners despite these challenges with the help of creative and persistent Realtors® who sometimes nurture these clients for more than a year to get them to the closing table.

A variety of tactics such as down payment assistance programs, help from relatives, seller concessions, and compromising on location, condition, or size can help renters become homeowners.

“When you work with first-time buyers, you must take time throughout the entire process to educate them and help them understand market shifts,” said Youssef Genid, broker/owner, Realtor®, and New Jersey director of Realty One Group Legend in Clifton. “Be transparent with your buyers and do a comparative market analysis on properties they’re interested in to help them understand average prices compared to what they want to buy.”

Parental and Seller Support

Many first-time buyers benefit from gifts from their parents or other relatives to pay for the down payment or closing costs, said Ellen Gonik, a Realtor® with Coldwell Banker Realty in Livingston.

“The first step for every buyer is to get a preapproval from a mortgage broker or lender that you recommend,” said Gonik. “Many buyers are able to expand their price range with a gift or loan from their parents.”

The annual federal gift tax exclusion limit is $18,000 per donor in 2024, which means parents can gift $36,000 to their child and another $36,000 to their child’s partner without incurring taxes.

“If you’re getting a gift, you need to have that conversation with your lender during the preapproval process,” said Alexa Micciulli, a Realtor® with ERA Justin Realty in Rutherford. “The underwriters need documentation about where money comes from and whether it needs to be repaid.”

Parents without spare cash may want to co-sign a loan as long as they understand the risks and the terms of the loan. A co-signer can help buyers qualify for a loan or a better rate if they have a lower credit score or not quite enough income, said Sagarese.

Multigenerational living can also help buyers get into their first home.

“Sometimes parents buy a larger house so their kids can live with them, or the parents move in with their kids to share ownership costs,” said Sagarese.

In a recent survey of prospective homebuyers by RE/MAX, 28% said they would consider buying a house with a friend or family member.

In some cases, sellers may be willing to help buyers with closing costs.

“Realtors® should ask the listing agent if a seller could provide concessions at the settlement to ease the buyer’s cash needs,” said Genid. “This frees up cash for the buyers or can be used to temporarily buy down their mortgage rate and the sellers can sell their property for a higher price to compensate for the concession.”

First-time Buyer Programs

Many first-time buyers in New Jersey qualify for homebuyer programs through state and local programs that provide down payment and closing cost assistance and low interest loans.

“Budget allocations in New Jersey were increased so we can offer up to $15,000 in down payment assistance in high-cost housing markets,” said Melanie Walter, executive director of the New Jersey Housing and Mortgage Finance Agency. “In lower cost areas we can offer up to $10,000. We also have a new program for first generation homebuyers that includes an extra $7,000 in assistance, so some buyers can get as much as $22,000.”

The first-generation program is available to buyers who have not owned a primary residence and whose parents or anyone else in their household have not owned a home, said Walter.

“This program is meant to overcome the lack of funds and generational wealth available to some first-time buyers compared to those whose parents can give them an extra boost to become homeowners,” said Walter.

While down payment assistance was previously limited to borrowers financing their homes with FHA loans, the NJHMFA now offers assistance with conventional loans, too.

“We’re one of five locations participating in a Freddie Mac pilot program that provides a pricing break on loans that we can pass onto first-time buyers,” said Walter. “We can also use our state subsidies to buy points on a large scale to reduce mortgage rates for our borrowers by one-fourth to one-half percentage point on any given day.”

In many states, loans associated with down payment assistance have above market rates, so New Jersey is a leader in offering lower cost loans, said Jordan Moskowitz, managing director, single family business of the New Jersey Housing and Mortgage Finance Agency.

“The impact of the buy down of the rate and lower loan pricing can save borrowers as much as $200 per month,” said Moskowitz.

Homebuyer assistance is in the form of a loan that is forgivable after the buyers live in the home for five years.

“Historically, people thought our programs were the loan of last resort, but now that one-third of our loans are conventional products and we offer below market pricing, we’re competitive with other loan programs,” said Walter.

The number of down payment assistance awards given grew by 15% in 2023 compared to 2022 despite the decline in first-time buyers statewide.

“Our timeline for our borrower reviews typically take three to five days and can be even quicker because our lenders do a complete preapproval of every borrower,” said Moskowitz. “There’s a misconception that these loans are less likely to close, when actually they’re just as likely to close on time because the source of the down payment funds is transparent.”

Realtors® and buyers can learn more about New Jersey’s programs or fill out a form on that site to receive recommendations for three lenders experienced with the program.

“To be eligible, the buyers must be first-time buyers, defined as anyone who has not owned a primary residence in the past three years,” said Moskowitz. “The income limits vary by county and can go as high as $120,000 to $150,000. In addition, borrowers can’t have assets in excess of 25% of the purchase price. We want to make sure we’re giving money to people who really need it.”

Realtors® and buyers can find out about all available homebuyer assistance programs in their area at nj.gov/dca/hmfa/roadhome/.

Expand the Shopping List

More than half of millennial and Gen Z buyers said they hope to buy a multifamily house or a place with space for a tenant to offset their mortgage payments, according to a recent national survey by Zillow.

“Some of the first-time buyers I worked with found two or three-family homes, but it takes a lot of education to help them do that,” said Micciulli. “I partner with an attorney who can explain tenants’ rights and hold classes for people who want to invest in real estate this way and increase their buying power.”

But Micciulli said buyers face steep competition from investors for this type of property and need to be prepared to be a landlord. In many other markets in New Jersey, agents said it’s virtually impossible to find a duplex or similar home to accommodate multiple families.

A simpler option, although not always palatable to buyers, is to expand the geographical region for their home search. Sometimes swapping one town or neighborhood for another that’s safe and has “good enough” schools can result in prices as much as 10% lower than another town, said Gonik.

“Often people have to move farther away to get a lower price, but it may not be as bad as they think to move a few towns over if both partners work at home or don’t need to commute every day,” said Gonik. “But towns with a train station or a bus or closer to Manhattan are more likely to hold their value, especially as some people return to the office.”

The alternative to looking in a different location is to buy a smaller house in the right location, said Gonik.

“Buyers are more willing to buy a townhouse or a smaller single-family home than a condo because of the monthly fees,” said Sagarese. “Sometimes they can buy a twobedroom instead of a three-bedroom to find something they can afford.”

First-time buyers typically prefer a house in excellent condition, but more than half (56%) of buyers said they would consider a fixer-upper in the RE/MAX survey. Micciulli recommends bringing a contractor to look at a potential fixer upper to get a more accurate idea of what improvements will cost.

Buyers willing to consider a fixer upper often face competition from investors. In addition, gathering the cash for renovations is often an obstacle.

“Realtors® should identify lenders who are familiar with renovation loans like the FHA 203(k) program that allows buyers to pay for the renovation with their 30-year mortgage,” said Genid. “These loans allow the repairs to be done before the family moves into the house, which reduces the stress of renovations.”

Realtors® should develop a network of lenders and attorneys to recommend to their clients, said Genid.

“It’s the responsibility of Realtors® to learn about lenders and their programs so they can share that information with buyers,” said Genid.

Whether it’s connecting first-time buyers to homebuyer assistance programs from state and local governments, to lenders with experience with renovation loans, asking sellers or family members to help or simply broadening the search parameters, Realtors® provide the expertise needed to convert renters to owners.