How buying a first home has changed since your parents did it
Allison Lemly bought her first home in 2020, a townhouse in Perkasie, Bucks County. The house covered most of his wish list: at least three bedrooms, more than one bathroom, a working kitchen and a basement.
Although the timing was tricky during the pandemic and strong seller’s market, Allison had done her homework and was ready to act quickly.
“I was saving money until I could afford to buy a house on my own and started looking at it in late 2019,” Allison, 29, a financial adviser at Ameriprise Financial, told Warrington. “Then COVID hit and I took a break. I was on a lunch break one day and went to Realtor.com, and this house came up on the market and had everything I was looking for.
But she had to act fast. Sellers were offering a Zoom tour the next day. She sent the link to her fiancé and his father, and with their blessing, she took the virtual tour.
“They were only offering three in-person house viewings, so I called the realtor immediately after the Zoom tour and said I’d like to come for a viewing,” recalls Allison, who offered asking price of $285,000 and got the house.
Allison’s experience was very different from that of her parents, who had bought their first home in 1988. They had been scouring the real estate sections of the newspapers for about two months when a client of her father’s lawn business mentioned he was selling his house, and it turned out to be the perfect fit.
The Mayfair twin had three bedrooms, a new kitchen and central air conditioning. It cost $90,000, which was the upper limit of his father’s budget. He estimates that his monthly mortgage payments were about 25% of his monthly income.
“I’ve always been a big saver so now that I was getting married it was the natural progression to buying a house,” said Gerry Lemly, 60, of Churchville, private wealth adviser at Ameriprise. “We wanted to live in Mayfair because that was where our family and friends lived. And the house had been completely redone. We just had to paint. »
The home buying experience has seen many changes over the past generation. Technology has made the process easier, but many first-time home buyers struggle to save enough money for a down payment, compete with other buyers in a hot seller’s market, and qualify for loans. .
In 2020, first-time buyers made up 33% of all home buyers, according to the National Association of Realtors Research Group’s 2020 Generational Trends of Home Buyers and Sellers Report. Fifty-two percent of homebuyers aged 30 to 39 and 88% of buyers aged 29 and under were first-time buyers. Among buyers aged 40 to 54, 23% were choosing their first home.
Among all generations, research begins online, according to the study.
“We’re all going shopping in sweatpants and pajamas, from condominiums to single-family homes to Instacart,” said Nancy Alperin-Regni, president and CEO of Maxwell Realty in Rittenhouse Square, and a real estate agent for over 30 years old. Google, Realtor.com and Zillow are popular and quick places to start a home search today, she said.
READ MORE: Philly is bringing back its popular first-time homebuyer grant program
Whereas previous generations relied on newspaper ads, word of mouth, and agent-run house tours, today buyers can research properties and neighborhoods, search for specific amenities, take virtual tours and apply for mortgages online.
While the search process may be different, today’s first-time buyers generally want the same things their parents were looking for, including three bedrooms and a nice kitchen in a good school neighborhood, Alperin-Regni said. Unlike many of their parents, today’s buyers are also looking for more outdoor space and an extra home office.
From a lending perspective, much more information is readily available online today, although homebuyers should verify its accuracy and may need further explanation from a finance professional. said Joseph Aiken, vice president of residential loans for Firstrust Bank, based in Horsham and Cherry Hill. .
“The loan process has become much more efficient and documentation has been streamlined,” said Aiken, who has been in the lending business for 39 years.
Although interest rates have risen dramatically in recent months, borrowers could last year secure a 2.5% mortgage on a 30-year fixed-rate loan, compared to the 17% or 18% their parents faced in the early 1980s, Aiken said.
Allison’s rate is 3% for a 30-year fixed mortgage, while her father paid around 8% for the same term.
READ MORE: Rising Mortgage Rates Mean Homebuyers Are Now Paying Hundreds of Dollars More A Month
Some first-time home buyers may qualify for state loans from agencies such as the Pennsylvania Housing Finance Agency and the New Jersey Housing Finance Agency, which may offer a slightly lower interest rate than a bank. Loans come with specific requirements regarding the cost of the home and the income of the buyer.
“That’s where a good lender comes in,” Aiken said. “They will tell you about these products as well as the expected monthly payments and the money needed to buy a house. People are sometimes shocked when they are told that they will need more money for closing costs in addition to the down payment.
Today’s first time buyers still depend on family members for advice and often financial assistance.
“We’ve come a long way in the past 30 years, but the old school is still here,” Alperin-Regni said. “I always see them bringing a family member with them to screenings.”
Allison’s father had a lot of experience to offer, having bought several homes for himself and as investments, as well as through his work as a financial adviser. He encouraged her to buy a house as soon as she could afford it, start building capital and not panic in a seller’s market.
“We had a good idea of what was out there and what people were asking for,” Gerry said. “We’ve taken the attitude that if we don’t get it, we’ll find something else.”
Whether it’s a buyer’s or seller’s market, Alperin-Regni advises clients to be ready when the right home becomes available. Know your budget and research the selling price of comparable homes in the neighborhood so you can act quickly when you find what you like.
READ MORE: Philadelphia buyers consider taking second jobs and selling property to raise money for homes
The median down payment for first-time buyers in 2019 was 6%, and about a third of buyers received a gift or loan from a relative or friend to help them out, according to the National Association of Realtors (NAR) . For the same group in 1989, the median down payment was 10%. In 2000, the first year the study included data on gifts or loans, 27% of first-time homebuyers received a cash gift for the down payment.
“Families who have the resources to help value what real estate has done for them,” Alperin-Regni said.
Although some parents don’t write their children a check for a new home, they help indirectly, Aiken said. Whether it’s paying for their post-secondary education or allowing them to go home rent-free for every other year, they’re helping their children save money.
“A student loan limits what you’re going to be able to buy,” he said. “Today, first-time home buyers can live with their parents for a bit, saving them money for a down payment. It used to be that people didn’t want to stay in their homes and they rented or bought as fast as they could.
For many, the biggest challenge when buying a home is getting the down payment. The NAR says student loans, car loans and credit card debt are the biggest expenses that have delayed saving for a down payment.
According to the Time to Save study, conducted in March 2022 by Self Financial, a lending fintech company, a couple living an average lifestyle while earning average salaries in their geographic market could be saving for a down payment in a little over ‘a year. It ignores emergencies and assumes the only things you’re putting money aside for are retirement and a down payment, said Lauren Bringle, certified financial adviser at Self Financial.
“When you’re alone, however, the story changes dramatically,” she said.
According to the study, the majority of single women in every state are unable to set aside money monthly for a down payment, while in 34 states most single men could save at least some, largely because that men have a higher average salary.
“Despite that, there are only 25 states where a single man can save his down payment and closing costs in less than five years,” Bringle said.
READ MORE: Homeownership isn’t easier for black people in Philadelphia than it was 30 years ago
Financial advisers often suggest that a mortgage payment should not exceed 28% of a buyer’s pre-tax monthly income and 36% of a buyer’s total debt.
Pennsylvania and New Jersey are two states where it is difficult to save. The study found that in Pennsylvania, a first-time homeowner would need $13,797 on average for a down payment and closing costs and would expect to spend an average of $1,149.75 on rent and living expenses each month. In New Jersey, the down payment and closing costs average $19,963, and the monthly rent and living expenses are $1,663.58.
“A separate study in December 2021 looked at generational wealth and found that today’s 40s own half the wealth of older generations when they were the same age,” Bringle said.
Allison defied the odds and is now a happy owner. Although the process taught her a lot, she discovered that there is always more to learn.
“There are always surprises with home ownership,” Allison said. “I owned the house for four months and my water heater disappeared. I had a home inspection, so that was a surprise. But the purchase process was quite easy. Working with a good mortgage company, I felt like I was in good hands.