Lacy Franks makes being a first-time homebuyer sound easy.
Franks, who grew up in Black Hawk, bought her first home last September, a two-bedroom townhome just off I-225 in Aurora, for $220,000 after three months of searching throughout the metro area. The 26-year-old was able to plunk down a $20,000 down payment, using savings she originally intended to spend on medical school. When her career goals took her elsewhere, she decided to get in on Denver’s hot real estate market.
“My friends all dreamed of getting married, but I wanted to buy a house,” Franks said.
Franks had no debt, thanks to a full-ride college scholarship, so getting a loan wasn’t hard.
For those with debt, smaller savings accounts or bad credit, buying that first home can be a lot trickier — especially in a metro area that’s seen costs skyrocket and starter home construction stagnate, said Andrew Abram, a Realtor with Vision Real Estate who’s on the committee that prepares the Market Trends Report for the Denver Metro Association of Realtors.
Market trends
The median sales price for single-family homes in the Denver metro area in September was $409,000, up 7.6 percent since last year, according to the Denver Metro Association of Realtors report, and inventory is down more than 5 percent. For condos and townhomes, the median sales price was $268,000, up 11.2 percent over the same time last year.
However, things may be looking up for first-time buyers, Abram said, as condo construction is finally picking up after more than a decade of stagnation commonly blamed on the so-called construction defects law, which established a low threshold for suing condo builders.
Condos, commonly seen as a steppingstone for first-time buyers, saw construction increase nearly 20 percent over this time last year, according to the DMAR report, which may be attributable to the impact of House Bill 1279, a law that took effect this year that raises the standards for suing builders.
While the median sale price of condos was on the rise, they were staying on the market longer — 39 days on average, up more than 25 percent over last year.
Larger trends suggest the Denver real estate frenzy may be nearing its peak, Abram said, which can ease pressure on first-time buyers.
“It’s still relatively difficult, but it’s slowed down enough recently for first-time homebuyers to actually have time to think about their decision rather than seeing a house and writing an offer on the spot,” Abram said. “I think that’s much more healthy to allow people some time to think about one of the biggest purchases of their lives.”
Sweetening the deal
Plenty of first-time homebuyers will find themselves repeatedly outbid by investors who can lay cash on the barrelhead, said Del Van Essen, a senior loan officer with People’s National Bank, who has worked with first-time buyers for more than 30 years.
“That’s why it’s important to get in with a loan officer at a mortgage company three months before you’re hoping to buy, so you can get pre-approved for a loan,” Van Essen said. “That way, if you have skeletons in your closet, they can help you fix that.”
If you have credit problems, working with collection agencies or getting a secured credit card can improve your credit, Van Essen said.
There are a variety of programs to help first-time buyers come up with a down payment, Van Essen said. The Colorado Housing and Finance Authority, for instance, gives grants of up to 4 percent of a down payment for first-time buyers. The Metro Mortgage Assistance Program and Colorado Housing Assistance Corporation can also help.
Getting pre-approved for a loan means baring it all, Van Essen said, and buyers should be ready to provide paystubs, two years of W2s, tax returns, bank statements, and to have their credit statements pulled.
Buyers can expect to be outbid a few times, Abram said, so it’s important not to get too fixated on a particular property.
“It is an exhaustive process,” Abram said. “At first it’s so much fun, then you get emotionally attached to a property, then you might put in an offer and not get it. Stick with it.”
Buyers with less up-front cash can incentivize sellers by offering to waive appraisal contingencies, Abram said, or by writing a letter to sellers explaining why they connect with the house.
“Normally a seller has lived in that house for a long time and have a deep emotional connection,” Abram said. “Sellers like to connect with someone who’s going to take care of the house.”
Living in a bubble?
With houses in once-middle-class neighborhoods selling for almost half a million dollars, the question remains: Is this a real estate bubble?
“Well, that’s the hundred-thousand-dollar question,” Van Essen said. “There are still a lot of people moving here. There might be some stagnation of prices, but as long as rents are high and people are still coming, prices will probably continue to climb. It’s still a good investment.”
Still, high prices mean that mortgage payments are high as well. Van Essen said at the low end, for a small condo in a less-desirable neighborhood, a buyer can probably expect to pay $1,500 a month — and although such prices are comparable with rent, it means buyers would do well to have an income three times the payment, or $4,500 a month.
Franks said the hassle of buying was well worth it. Her townhome has climbed $20,000 in value since last year, and she’s happy to have a place of her own.
“Plus, I love that I won’t have to move again soon,” she said.
