Daily Archives: April 15, 2016

The First-time home buyer’s dilemma

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Affordable segments in the real estate industry include smaller homes in both suburban and urban areas. But sadly they don’t only appeal to first-time buyers but also to deep-pocketed investors. Making it difficult for the newbies to purchase their own home given the years of experience these investors have in the trade.

Ideally, investor buyers have higher incomes than both median and primary-income residence buyers.  This makes it tough for the first-time buyer to compete but given that they are owner-occupiers they will have an advantage of 50 basis points which the investor won’t have. With this, investors will pay higher mortgage rate because they do not live in the property as their primary residence.

Even though investors are more attractive to lenders they still pay higher rates. This results to an easy mortgage application and approval process and sometimes they don’t even have to undergo the mortgage process at all. Buyers with the ability to pay cash will have the advantage to get the deal because they can make offers without a financing contingency. Offers without financial contingency will close more rapidly.

With the millenials slowly being out there to purchase a home, rental properties’ demand will continually increase. This trend is not affected by the tight supply and credit environment the industry is operating in. In fact, homeownership is nearing a 48-year low as older household are also recovering from the crisis brought about by foreclosures.

With the investor buyer’s advantage over a typical buyer, the supply of smaller and lower-priced homes is slowly dwindling down. With every investment purchase, the available home for selling decreases. This year will see a similar pattern of buyers against the backdrop of growth if real estate sales. This makes it more difficult to buy a home, from qualifying for a mortgage, finding a home until the successful bidding to get a contract.