How to Buy a First Home in a Crowded Market

A slight cooling of the market could be an opportunity to buy.

Key takeaways:

While housing supply is still limited, home prices and mortgage rates appear to be stabilizing.
Be mindful of what you can (and can’t) afford.
The right homeowners insurance can make the difference between a smooth and bumpy home ownership experience.

Could this be the year you take the leap and buy your first home? While it’s no secret that the housing market has been on a wild ride in recent years, there are some signs that it may soon be heading in a calmer direction.

Even though existing-home sales fell for five consecutive months earlier this year after high values were joined by higher interest rates, industry gurus expect mortgage rates to stabilize or dip slightly. Supply issues should also continue, even with a slight increase in available property. And while prices are still high, they too are starting to show signs of settling down.

If you are considering looking into the market, keep these tips in mind.

Don’t break the bank

First, some good news—home prices slowed their upward climb at the fastest pace on record in June. But make no mistake, prices are still high. In 2021, the median price of a home was a record $346,900, an increase of 16.9% over 2020. So, it’s crucial to have your finger on the pulse of what you can and can’t afford.

Stick to these four indicators of affordability:

Savings for a down payment
Household income
Monthly debt service
Credit score

The amount you pay in debt each month will come from the pool of money you must put towards homeowners insurance, mortgage, and taxes. And, of course, your credit score determines your interest rate, which directly affects your borrowing power.

Once your resources are lined up, it’s on to the mortgage.

Get your mortgage pre-approved

Just as housing prices are showing small signs of improvement, mortgage rates likewise are finding stable ground. After recent increases as the Federal Reserve raised the benchmark rate this year, analysts anticipate a small dip in mortgage interest rates by the end of this month. And if there is an opportunity to buy the right property, it’s all the more reason to get that pre-approval process started.

In a nutshell, pre-approval is when a lender looks at your income, credit score, and debt payments and then consents to back a loan. This allows you to enter into a mortgage with confidence that you will be able to place a bid on a home and afford monthly payments. Add to this how much you can put out for a down payment, and you’ll have a sense of what the house will actually cost (not including a few months of cash reserves).

It’s worth noting that a lender may give you a pre-qualification letter before a pre-approval letter. These are two different things, and it’s worth noting the distinction. Pre-qualification sets the stage for how much loan you can expect to get. Pre-approval is when the lender officially commits to funding your mortgage.

Figure out what you can’t live without

Part of being able to afford a new home in this market is knowing what you can (and can’t) live without. Keep a list of must-haves handy and think carefully about which of them will really make you happy and what won’t make you lose any sleep.

Think a parking space is disposable? What happens when you and your partner start a family and find yourselves lugging a stroller and three bulging backpacks down the subway steps? Is a wood-burning fireplace a must? Who’s actually chopping all that timber in the middle of a Nor’easter?

Each of these amenities comes with a price tag. So keeping a cool head on your shoulders will help keep costs in check and make your dream home that much more affordable.

Make the right insurance moves

Finding the right home is certainly hard, but finding the right insurance can make buying and maintaining that home a lot easier. Here’s how to find homeowner’s insurance that works for you.

Collect the right data

When you speak to an agent, you’ll need to provide details on the following:

How much insurance you really need. In addition to potential liability, you’ll need to factor in possible repairs and upkeep that will be required down the road.
Your credit score and claims history.
The property’s address, which allows potential insurers to evaluate the neighborhood’s environmental conditions and history of home insurance claims.
The age of the boiler and roof, and a list of recent repairs.
What you’ve done to improve the property’s security. This can bring down your premiums.

Evaluate all your options

A month before your move-in date, get offers from several insurers and proactively reach out to agents with questions. When you compare deductibles, depth of coverage, and coverage limitations, this could save as much as a few thousand dollars over the policy’s lifetime.

You can also ask a professional for help. Many firms offer free initial consultations for first-time homebuyers.

Consider buying multiple policies from one provider

In addition to your new home, you probably have or need other policies (auto, life, etc.). Most insurance companies will give you more generous rates when you buy multiple policies with them.

Be realistic about what insurance can do for you

Homeowner’s insurance is, of course, a necessity when buying a new home that has a mortgage. But don’t sit back and think all your worries will float away once your policy is in hand. Be clear on what it covers (and what it doesn’t) and take a good, hard look at things in your personal and professional life that could be outside the scope of a policy.

Remember that insurers work for you and should be held to the highest industry standards. There are five insurer-rating agencies that can help you sort out the bad from the good.

Be prepared with preparation and expert help

Make no mistake; this is still a seller’s market. But if you’ve toyed with the idea of buying your first home or even made some offers in the past, it might soon make sense to jump back in the game.

If that sounds like you, be sure to assemble the right people to make the process as seamless as possible—a veteran real estate agent, a mortgage lender, a home inspector, and, of course, an insurance professional. The NICRIS Insurance team can help with that last part, finding the best policies to protect you and your first home.

Four Tips on Buying Your First Home in a Hot Market