Mortgage rates are still high, and the housing market in many areas is down to a trickle. First-time homebuyers are seeking new and inventive ways to purchase a house.
Traditional 30-year fixed loans and 20% down payments aren’t always possible for today’s first-time buyers of new homes. Younger purchasers are responding with a mix of financial creativity, digital savvy, and sheer hustle.
First-time homebuyers are rewriting the rules of real estate. They’re embracing non-traditional financing, shared equity, co-buying, and builder incentives to break into the market. These approaches require savvy, sacrifice, and serious planning, but for many, they’re the only way to turn homeownership from dream to reality.
NewHomeSource asked Nicollette Chapman, Zonda’s senior vice president of national mortgage data solutions, for insights on unconventional ways to buy a home.
Is this shift toward non-traditional strategies a sign of desperation or innovation? Or a bit of both?
Non-traditional mortgages have been less prevalent since the 2014 implementation of the QM (Qualified Mortgage) Rule, which establishes guidelines to ensure a borrower’s ability to repay the loan.
The QM rule prevents borrowers from obtaining mortgages they can’t afford (recall the 2008 stated income loans). But there are plenty of situations where innovation through a non-QM loan makes sense (think self-employed business owners).
What should buyers know before buying a home with friends or family? Where do most partnerships go right or wrong?
Nobody enters an agreement with the idea that one party will default on their part of the deal. Life happens: People get sick, lose jobs, get divorced, etc. When purchasing a home with another party, creating a mutually agreed upon, written contingency plan is always best. A home purchase is a significant investment, so it’s worth speaking to a licensed attorney on best practices.
For someone feeling priced out of the market, how does purchasing a new home improve a first-time homebuyer’s experience?
New home builders offer low interest rates, making qualifying for a home much easier. You might need to give up a prime location or a large backyard, but remember that, in most cases, a starter home is not your forever home. It is a way to gain equity so that you can use that profit within a few years to purchase your move-up home.
Shared equity platforms (purchasing a portion of a property and paying rent on the remaining part, with the goal of eventually owning 100%) and fractional ownership (a defined percentage of ownership and usage rights) are becoming more visible. Are they an innovative approach or a slippery slope?
Home Equity Investment (HEI) programs can be an excellent way for buyers to enter the market, but it's important to read the fine print. If you decide that the HEI route makes sense, take the time to compare terms from various organizations.
Like shopping for a traditional mortgage, each investor will have unique guidelines and a corresponding appetite for risk. What are the terms of the equity share when you sell? If the house loses value, will the investor participate in the loss?
Are lenders receptive to income from Accessory Dwelling Units or short-term rentals when approving mortgages? What are the limitations?
“Lenders may consider rental income from Accessory Dwelling Units (ADUs) or short-term rentals (such as AirBnBs), but the extent to which this income is eligible, and how it is calculated, depends on the loan type and the guidelines set by the loan agency or investor,” said Kelly Zitlow, executive vice president at Cornerstone Home Lending.
Follow NewHomeSource on Instagram
