How to succeed as a first-time buyer in a seller's market

You've been saving like a diligent squirrel gathering nuts for the winter. You're fairly confident your financials will land you a low fixed interest rate on a mortgage. And the time feels right to move out of mom and dad's pad or that rental and claim a piece of the American dream by buying your first home.

Problem is, many other people have the same plan. And there doesn't seem to be enough affordable houses for sale to satisfy demand.

Welcome to the 2018 edition of the sustained seller's market. Strap in, because it could be a bumpy ride. But don't let that deter your driving ambition to become a homeowner — with the right planning and perspective, you can reach your destination, although it may require some nifty maneuvering, say the pros.

“First-time buyers are often at a disadvantage in seller's markets for many reasons. They're competing against other buyers, many of whom are more experienced in the process and can afford larger down payments and some of whom can pay cash,” says Michael W. Trickey, author of “Finding Home: Everything You Need to Know – And Do – For Home Buying Success” (Finding Home Books/Next Century Publishing, 2016).

By contrast, “First-timers are unfamiliar with the process, afraid of making mistakes, have less money available for a down payment and closing costs, need to obtain a mortgage loan, have more need of contract contingencies and need to rely extensively on their real estate agent to prepare and present their offer. They can find it difficult to react as quickly as needed in a highly competitive seller's market,” Trickey adds.

Ralph DiBugnara, vice president at Residential Home Funding Corp. in Parsippany, New Jersey, agrees, noting that continued lack of inventory (the national housing supply has dropped for 30 straight months, per the National Association of Realtors) isn't helping matters.

“It can be frustrating to purchase in a seller's market because you will most likely have to overpay for a property, which pushes you above your anticipated budget,” DiBugnara says. “This leads to a loss of negotiating power. When sellers receive multiple offers, they can give you a ‘take-it-or-leave-it' attitude.”

Consequently, hopeful home shoppers have to be prepared to act quickly if necessary. They need one or more backup plans in case an offer falls through. And they should expect some setbacks and slowdowns along the journey. Maintaining a positive attitude and remaining realistic yet persistent is also important.

“Remember that owning today is usually cheaper than renting. Plus, it's a great time to take advantage of near record low interest rates and great low down payment programs available, including a Fannie Mae Home Ready program that only requires 3 percent down and a 3.5 percent down payment FHA loan for those who qualify,” says Richelle McKim, broker with Castle Rock, Colorado-based 121 Realty.

Buyers can also take solace in the fact that a strong seller's market indicates an in-demand area where home values are due to continue increasing in value, which can be rewarding when it's time to sell in the future.

For best success as a first-time purchaser, count on doing plenty of homework before you make your first offer. For starters, learn and improve your credit score by visiting freecreditreport.com; you'll qualify for better mortgage rates if your score is 720 or higher.

Next, “Get a mortgage preapproval from a lender, which can help determine what you can afford and keep you from not overreaching financially,” Ron Alishah, Realtor with the Keyes Company in Plantation, Florida, says.

Speaking of lenders, shop around and compare rates and terms carefully.

“Check online and with local lenders for programs they may have available for first-time buyers,” Trickey says. “Many national and state programs also exist to aid first-timers, so do a thorough search.”

Enlist the help of a real estate agent early in the process, too.

“Contact and interview several of them, and pick one whom you like and trust,” Trickey says. “Make sure they have a well-established network and access to information about homes that are about to come onto the market.”

Together, scout your desired locations carefully.

“Find out what's driving that market,” Trickey says. “Is a major employer recruiting nationally and adding lots of new employees who are moving into the area? Is the school system highly ranked? Decide if the factor that's driving demand and prices is important to you. If it's not, you may want to look in another area.”

Another top tip: limit your demands.

“Be careful not to include too many contingencies when making your offer,” says Cheryl Eidinger-Taylor, president of ERA Key Realty Services in Northbridge, Massachusetts. “Even if your offer is higher than another's, it may be rejected if you place too many demands on the seller, like expecting them to pick up closing costs or include appliances in the sale.”

Also, have a plan in case a bidding war erupts, and be ready to walk away from a bad deal. “Don't let a hot seller's market put you into a negative financial situation,” Trickey cautions.

Lastly, exercise patience if things don't go your way or at the pace you prefer.

“Remember that a slower process can be better for a first-time buyer,” DiBugnara says. “This forces you to do more research and not make an impulsive purchase.”