Lenders Ease First-Time Buyer Jitters

According to a new survey from TD Bank, America's Most Convenient Bank, first-time homebuyers are feeling anxious and unprepared in this highly competitive housing market. TD's First-Time Homebuyer Pulse found that despite a desire to purchase, nearly 29% of consumers eager to buy feel this is an uncertain time to do so. Additionally, buyers haven't taken necessary steps to prepare for the competitive housing market.

TD Bank surveyed more than 1,000 Americans planning to buy their first home in 2022 to uncover homebuyers' views on the purchase process, their preparedness to enter the market, and what they're looking for in a home.

Low inventory, steep competition, and high prices in many areas across the U.S. are fueling fears for buyers, and creating an even more daunting undertaking for those entering the market for the first time. TD's survey found that only 36% of those looking to purchase a home in 2022 believed now was a good time to buy, a sharp decline from 59% in 2021. This is a significant drop from 2020 when some 68%, or twice as many prospective buyers, said it was a good time to purchase a home.

First-time buyers' perception of the unpredictable economy are causing first-time jitters, as data shows seven out of 10 are concerned about the economy, and 67% are concerned about their ability to afford a home. With the median U.S. home price reaching $350,300 in January, a 15.4% increase from the same time last year according to the National Association of Realtors, approximately 65% of those surveyed say home prices are too high and unaffordable. Despite the negative sentiment, 35% still desire to purchase a home as quickly as possible while 30% are willing to wait until the market calms down.

"Whether you enter now or in a few months, you're going to be faced with a competitive market," said Steve Kaminski, Head of U.S. Residential Lending at TD Bank. "If first-time homebuyers want to ease anxieties and succeed, it's imperative that they prepare and meet with a lender early in the process. Lenders can help lay the financial foundation and educate buyers on the paperwork they'll need for the mortgage process, giving them confidence as well as a leg up on the competition."

Hot competition warrants a revised wish list in this market, however, a little more than half of Americans are looking for a starter home or fixer-upper, rather than a forever home. An estimated 56% of those looking for a starter home or fixer upper say the current market strongly impacted their decision, with 39% trying to find something more affordable, and 22% unable to find the forever home they wanted due to low inventory.

Spending more time at home throughout the pandemic has also reshaped buyers' wish lists. Only 31% listed "close to office/work" as a top three priority for their new home, down from 37% last year, partly due to more permanent hybrid and remote work. The pandemic has also driven buyers' desire for more square footage, allowing more room for stay-at-home conveniences.

More living space is a motivator for a large 69% homebuyers, in line with the same percentage from 2021. Some 45% of respondents are factoring in space for a home office into their search, and 37% are considering space for a home gym.

Considering the many obstacles of the housing market, more than half of respondents view the homebuying process as stressful. TD Bank found that less than 48% of first-time buyers have started saving for a down payment, compared to 59% last year. Some 54% have yet to establish a budget for their new home, and those who have may have failed to account for the total costs of home ownership, from maintenance and renovations to Homeowners Association fees, utilities and insurance.

Increased education from lenders about first-time homebuyer programs may also ease the burden for the 46% of respondents and 51% of younger millennials ages 26-33, that said saving for a down payment was a major roadblock to purchasing their first home. In addition, 81% of low- to moderate-income borrowers cited making a down payment among the top three hurdles they're concerned with facing in the homebuying process.

"Buying a home is a huge financial commitment but it doesn't mean it's off the table if you feel you have limited resources," said Kaminski. "Many lenders, including TD Bank, can introduce buyers to affordable mortgage programs and products designed to give first-time buyers more flexibility in the purchase process. So, no one should count themselves out. Buyers should speak with a professional and learn their options first."

To view the full report, including tips and methodology, click here.