The first-timer’s guide to scooping up a home in 2021

“Since it is a competitive market, buyers often have very few windows of opportunity to put down offers,” Cody Barbo, CEO of Trust & Will, says in an email.

For buyers who are toiling through the complex—and expensive—process for the very first time, it hasn’t been an easy market in which to learn the ropes. Here’s a guide, albeit a slightly unconventional one, to provide a little clarity for first-time homebuyers and help their offer stand out in 2021.

A second look at the budget

Before delving into some unique strategies first-time home buyers can test out this year, it’s important to recognize some of the costs and fundamentals. 

A house is often the largest expense in a person’s life, and the checks for the upfront payments aren’t small. There’s also a whole lot more to pay for than just a deposit. It’s critical that buyers identify all the upfront expenses and budget for them. It’s one thing to know you can afford an estimated monthly mortgage, and quite another to add thousands of dollars in initial fees on top of it.

Here are some of the key expenses you should be prepared to fork out, right off the bat:

Down payments: Mortgage lenders nearly always require homebuyers to make a down payment when purchasing a new home. That percentage can vary, and can be as low as 3.5% of the purchase price. But a good thing to keep in mind is that, the less you put down up front, the more you will likely be paying in the long run. A conventional loan usually requires about 20% of the cost upfront, which can be a steep sum for a buyer ($50,000 on a $250,000 house), but it can help buyers avoid having to pay private mortgage insurance, which is meant to protect the lender from you defaulting. Delivering a higher down payment can also serve as a means of protection. For example, let’s say about 12 months after you buy a house, you get in a sticky situation and need to resell your home. At this point in time, the local housing market has taken a turn, and your home is currently selling at about 10% less than when you purchased it. If your original deposit had been low, say only about 5%, you might end up having to actually fork over additional funds just to sell your house. Larger down payments can help reduce or eliminate this risk.

Closing costs: Closing costs are the fees you have to pay to close the deal and finalize your mortgage, and they typically range from about 2% to 5% of the value of a home (5% is $12,500 on a $250,000 home). While sometimes sellers may be willing to cover some of these expenses, it’s not as likely in a seller’s market, especially when there are several other offers on the table. 

Broker fees: Sometimes buyers will enlist the help of an agent to help them find a home that fits their needs, or try to get ahead of new listings before they hit common rental sites like Zillow. Of course, real estate brokers charge commissions. Typically, a single broker commission is split evenly between the buyer’s and seller’s agents and their respective real estate broker employers. The standard fee is usually somewhere between 4% to 6% (6% is $15,000 on a $250,000 house). While the seller of the house often pays that fee, it may be embedded in the listing price of the home and ultimately be paid by the buyer.

Property taxes: Taxes are going to vary by state, city, and county, but buyers will typically need to be prepared to pay about a year’s worth upfront, although it will depend on when you plan to move in. Since the tax rate varies widely, it’s probably worth utilizing a tax calculator (like this one) to estimate what the payments will be, and what you’ll need to have upfront. 

Home insurance: Mortgage lenders require that buyers have insurance before taking out a loan. While you’ll be able to customize plans according to specific needs, buyers will generally have to pay for the basics of damage and liability. The national average cost of insurance is about $1,300 annually for $250,000 worth of coverage. But some areas, especially those more prone to natural disasters, can have rates that are much higher. Bankrate offers a useful state-by-state guide on average monthly and annual premiums. Oklahoma, Nebraska, Kansas, Arkansas, and New Mexico have the highest average rates.

Inspection fees: Before closing on a house, an inspector will need to go through the home and evaluate whether there are repairs needed, such as water damage or a leaky roof. Buyers typically pay for this service, and it can cost around $400 to $600, according to Bankrate, although it can vary. 

Initial maintenance fees: Ideally, the home will be ready to go at purchase, but sometimes houses are sold “as-is,” and there may be some upfront maintenance costs to address prior to, or after, move-in. Since there’s an inspection beforehand, hopefully there won’t be too many surprises, but they are always possible, so it’s good to have some funds set aside, just in case.

Keeping the costs down

All those various fees—on top of the down payment for the home itself—can add up quickly. Thankfully, there are a few ways you can cut those fees down.

Boost your credit score: The better credit score you have, the better interest rates you’ll get. Your score doesn’t need to be perfect, and the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs are more sympathetic with their minimums than traditional lenders. However, if your credit score is excellent—with FICO, a score of over 750 is considered excellent—you’ll be able to get better terms and lower rates. If you are struggling with the mortgage rates, it might be a good idea (or at least a cost-effective one) to wait a bit and improve your score before getting a mortgage.

State, city, or county assistance programs: Many regions have programs specifically for first-time homebuyers that will help alleviate some of the upfront costs. They can help cover closing costs and minimize down payments. Here is a comprehensive list of state programs from the U.S. Department of Housing and Urban Development to help guarantee you’re paying the least amount possible.

Pick your location carefully (if you can): Where you are looking to buy matters, a lot. St. Louis, Pittsburgh, Cleveland, Hartford, and Buffalo were the most affordable cities for first-time homebuyers in the second quarter of 2021, according to a NerdWallet report released earlier this month. Living in Los Angeles, however, costs more than 12 times the average first-time homebuyer’s salary. Here’s a look at the affordability of major metro areas:

A new home

Once you have a good estimate on what you can afford, it’s time to pick the home itself. This part of the process is personal and can be a very emotional decision for individuals or families. It’s going to come down to careful prioritization, as no one house is exactly the same, nor on exactly the same property.

While some of the narrowing down may be easy (how many bedrooms you need, for instance), other priorities are more nuanced and may not come to mind right away, even if they are equally important to you.

Here’s a sampling of questions to consider in the decision: Do you like the neighbors? What is the parking like for guests? Is street parking acceptable? Are there certain rules in this area you’ll have to abide by? (For example, no beekeeping in the backyard or certain paint color requirements.) Is the community gated? (If so, you may have to handle your own trash pickup, even if you pay the city for that service.) You may not have kids yet, but will school zoning become a priority in a few years? 

But even after you’ve found a home in your price range that checks all the boxes (or at least the ones that matter most), the hard part of the current market right now may be convincing the seller to accept your offer. There are traditional methods to grab their attention, such as contractual givings like cutting contingencies, going above the offer price, escalation clauses, and more.

Here are a few unconventional strategies that could also help you land the home you like: 

Write a note: If you’ve fallen in love with a specific place, write a detailed letter on what captivated you, and how the home would fit into your or your family’s life. Particularly if the owners put a lot of work into the place themselves, they could be flattered to have its next tenants appreciate it. It doesn’t hurt to pull at some heartstrings. 

Look over some purchase agreements before viewing houses: Save time during the offer process by reviewing purchase agreements and understanding what decisions you will have to make prior to looking at any homes. This may allow you to act more quickly when you are ready to write up a contract and make your bid more competitive.

Ask the last seller for more info: Try giving a call to the selling agent of the last house you bid on and ask how many offers he or she received, as well as how much above the asking price they were. If they tell you, this could help you improve your next attempt with a bit more context.

For some, the unfortunate but best answer may be simply to wait. There’s always next year.