None of the really good real estate agents on the market would tell them that there was a big difference between a 1,000-square-foot flat and a 4,000-square-foot house.
“And because of this, we fell in love with the place and spent many hours inspecting and picking through offerings,” Joan and Catherine Schuman, real estate agents with Findaproperty.com, a website that helps people find housing on the internet, write in their new book, “Buying a First Time Home: What You Need to Know About Buying, Selling, and Remodeling Your First Home.” “We did not see differences in the prices of properties for sale or in bank interest rates. Indeed, we easily turned down higher offers because these were bids that would have promised far more time for our closings than our diligence and the time we were willing to invest.”
The short answer is that life isn’t really like the movies. All sorts of factors — geography, real estate prices, planning, desire — can work against an average American wanting to achieve the American Dream, and extra effort, diligence, and even sacrifice can make a difference.
After all, when most people think of splurging on their first home, they tend to think of buying a condo or townhouse in Manhattan or Brooklyn, and recent research indicates that people who spend more on their homes generally get more — just a little bit more — out of them.
According to a study that recently appeared in the Journal of Urban Economics, those who spend more on their homes earn more, and are less likely to earn less. Whereas first-time buyers with high house prices and low credit scores make less overall income than less wealthy buyers, first-time buyers with high house prices but low credit scores make just about the same overall income as low-income buyers who make little.
But that same study also shows a caveat: First-time buyers without high house prices but low credit scores have slightly higher income than low-income buyers with low house prices and high credit scores.
This means that among first-time buyers with high house prices, low-income buyers also don’t make as much overall as low-income buyers with high house prices but low credit scores. “Everyone wins,” write Schuman and their co-author, professor Jerda Dover of Cornell University, “except the low-income buyers,” because the data suggests that they pay the most out of pocket for their houses.
“First-time buyers have to save all the time and effort required to buy,” Schuman told The Times. “A lot of people sacrifice when they’re first starting out and not making a lot of money. They might make a sacrifice on price, they might make a sacrifice on features, they might be late on paying for things. Sometimes people choose a house that’s not the right house for them in the beginning and then one day, if they’re in a good situation and start making money, they’ll go and buy a bigger house, because their family is growing.”
In the Schuman and Dover study, however, it appears that as long as first-time buyers with high house prices have small enough credit ratings that low credit scores are manageable, they’re not entirely at the mercy of a tight labor market.
“In the United States, lots of first-time buyers are paid hourly, like a retail worker or an office worker,” the authors write. “Low credit scores and relatively low incomes also make them prime candidates for (federal) housing vouchers, particularly for households in poor health or low-income families.”
Indeed, the authors find that “older, middle-aged first-time buyers with low credit scores might be able to obtain low-cost mortgages.”
And often, that’s something that first-time buyers of all income levels can count on — the kind of inexpensive housing options that can keep them in housing as they build their careers.
“The typical new homeowner may well have reached the second or third stage of life, with kids, and that helps to slow down the need for housing,” they write. “This, combined with the fact that it is much easier to avoid costly, onerous closing costs than with more expensive homes, helps to keep overall costs down — important when an additional $100,000 doesn’t add up.”