A high school teacher married to an admin assistant are planning a big family wedding in June. By then, they’d hoped to leave their tiny rental apartment and move to a small home of their own. Hence, every Sunday they attend open houses in their target neighborhood.
But two factors are delaying progress toward homeownership. One is that there are few available properties in the starter-home price range in their suburban area. The other is that they’re intimidated by the mortgage application process.
“We both have college degrees. But the thought of going to a mortgage lender for preapproval makes us feel ignorant. We’re scared we could get rejected by lenders on some vague technicality,” the teacher says.
Kate Foster-Bankey, a longtime agent with Compass Realty, says this young couple is hardly unique in their level of intimidation about home finance.
“When I ask young buyers at open houses whether they’ve been preapproved, most tell me no. That’s too bad, because preapproval is essential for all buyers. Many agents, myself included, won’t even show homes to people who haven’t been cleared by a lender to know what they could afford,” Foster-Bankey says.
Is anxiety preventing you from buying a first home? Here are several common sources of intimation and how to overcome them:
-- Fear your credit history will be a problem.
“If you’re willing to face a mortgage lender at the front end of the buying process, you could experience a big breakthrough. Buyers are often surprised and delighted by what the lender tells them,” says Eric Tyson, co-author of the “Home Buying Kit for Dummies.”
But many first-time buyers refuse to see a lender in advance of home shopping.
Of course, many wannabe owners have flaws on their credit reports that must be fixed before mortgage approval is possible. Still, as Tyson says, mortgage brokers and lenders often prove much more supportive than loan applicants anticipate.
“Remember that lenders have seen it all when it comes to credit reports,” he says.
As Tyson underscores, most mortgage lenders rely on commissions and don’t get paid unless their clients get approved. This gives them a strong incentive to take the time and energy to find workarounds that allow their clients to make a purchase.
-- Fear of choosing a home your family won't like.
Many would-be first-time buyers belong to the Gen Z or millennial generations. On financial matters, they still look to their parents or other older relatives for guidance and, not infrequently, for cash subsidies as well.
There’s nothing inherently wrong with seeking help from relatives. But Tyson stresses that buyers should request their involvement early on, not when you’re about to close on the property of your choice.
Relatives who are asked to see just one home prior to submitting a bid could well find flaws with the place and advise against it.
“Most family members will wish you well. But by asking for their counsel at the 11th hour, they could feel an obligation to dissuade you in order to protect you. It’s often a problem that older people may be out of touch with current real estate pricing, and if you catch them off-guard they may worry you’re overpaying,” Tyson says.
If you’re afraid to go forward without your relatives’ guidance, but don’t want them to mess up your plans, Tyson suggests you bring them along on all your house-hunting trips. That way, they can compare various alternatives and are likely to give you more objective advice.
-- Fear of a mistaken purchase.
Given the stakes, many prospective first-time buyers become highly risk averse out of concern they could make a huge mistake.
“For some novice buyers, there’s a strong tendency to do endless market research, especially by spending hours on the internet,” Tyson says.
But especially in the current fast-paced market, waiting for total certainty can also have its penalties. That’s especially true in popular neighborhoods where homes are still scarce and bidding wars remain a problem.
“It’s an unfortunate reality that you can forfeit the chance for a great purchase by procrastinating,” Tyson says.
Second- and third-time buyers are less inclined to procrastinate on a purchase decision because they know there’s no such thing as a perfect house, even if they have it custom-built to their taste.
-- Fear of having too little cash to go through with a deal.
It can be costly to make a housing change at any stage of your life. But many first-time buyers overestimate their need for cash to go through the transition. They fail to take into account the reality that there are a multitude of low-to-no-down-payment mortgage programs available to them, particularly through local government offices.
Tyson says cash-short buyers are well advised to explore these options as soon as they decide to make a purchase -- rather than postponing until their savings accounts are brimming with funds.
“This is one more reason that having a comprehensive sit-down visit with a strong mortgage lender makes financial sense before you dive into a housing purchase. Information is always power,” Tyson says.
(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)