Jaxx Fox has lived in East Tennessee her entire life, although she never felt at home inside the apartments she rented. That’s why, three years ago, Fox decided to buckle down to save for her own home. 

First-time homebuyers like Fox are entering a real estate market with drastically declining housing affordability, according to the National Association of Realtors (NAR).

The organization’s Housing Affordability Index indicates the short supply of homes is increasing costs across the country, and especially impacts first-time buyers. 

Median family incomes in April fell 1.0% from March. Meanwhile, the monthly mortgage payment increased 16.1%.

Fox spent three years paying her student loans and saving so she could buy the home she always wanted. When she started searching, it wasn’t like anything she expected.

Fox found a place within a month, but that doesn’t mean it was easy. 

From financing to finding a place, this is what first-time homebuyers need to know about a competitive and expensive real estate market. 

How to prepare to pay for a house

The first step for new buyers is to figure out how to pay for a place. Usually, people buying their first property turn to mortgage lenders for a home loan. 

Claudia Rios, senior loan officer with First Community Mortgage and founding member of the National Association of Hispanic Real Estate Professionals, has helped many first-time homebuyers since starting her career in financial services in 2006. She said the current real estate market is drastically different than anything she’s seen before. 

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Here’s how Rios suggests new buyers prepare to purchase their first place. 

• Plan months in advance: Rios told Knox News new buyers should talk with a lender about six months before they hope to buy. “It’s never too early to start getting ready for a mortgage,” she said. Once first-timers find a lender, Rios advises following up often until they’re ready to start searching for a home. 
• Check that your credit score is correct: The COVID-19 pandemic has created challenges for credit bureaus. Rios said she’s discovering that many scores are incorrect. If a buyer’s score is reported wrong, they can work with a lender to dispute the issue. 
• Connect with a credit counselor if needed: Not everyone’s credit score is in the best position to buy a home. Rios tells her clients to aim to have a credit score of 700 or higher to get a good interest rate and to pay down debt. If you’re having trouble increasing your score, credit counselors are available to assist. 
• Make a budget: Buying a home is a big investment, but you don’t want to get stuck paying more than you can afford. Rios asks her clients how much they’re comfortable paying monthly and works backwards. The goal is to make enough room in your income for a mortgage payment. Rios said setting aside 45% of income for a mortgage and 55% toward other expenses works well for most of her clients. 

The most important thing to do before buying is to set realistic expectations. This starts with financing. Home costs are rising quicker than ever, meaning money doesn’t go as far. 

According to an analysis by Hancen Sale, governmental affairs and policy director for the Knoxville Area Association of Realtors (KAAR), the median sales price of a home was $275,000 in June — up 21.4% from June 2020.

The 30-year fixed mortgage rate was 3.11% in April compared to 3.37% one year ago.

“Nowadays, the market is tight because a $250,000 loan doesn’t get you the nice four-bedroom house you might expect. Buyers have to go higher and be strategic,” Rios said. “It’s a disadvantage for a lot of people, new and previous buyers included, but that’s the reality.” 

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How to buy your first home

For Fox, finding and buying her first home was the hardest part. It’s often the reason why many new buyers give up, especially in this competitive market. But realtor Nikita Hudson of Hudson Legacy Group said there are ways for buyers to withstand the pressure. 

“My first conversation with a new buyer is just giving them a clear picture of what the market looks like right now and what the process is going to be like,” Hudson said. “It’s been tough because it’s not what they think it is.” 

Here are Hudson’s tips to help set first-time buyers up for success. 

• Research the real estate market: Just like it takes time to secure financing, new buyers should watch the market months before buying. Doing so allows first-timers to get a good idea of costs, timing and supply. 
• Look below your budget: Hudson recommends buyers avoid homes at the top of their budgets. Look at listings that leave you $20,000 of wiggle room, she said. KAAR’s calculations show more than 68% of homes sold in Knoxville in May went for list price or above; nearly 10% sold for $25,000 or more over asking price.
• Be prepared to pay: Fox said a big down payment, paying for closing costs and offering earnest money helped her secure her home. Hudson seconds these strategies and advises buyers to include contingencies in their contracts. An example clause would be to agree to only ask for improvements over a certain cost.
• Get creative: Money talks, but Hudson said she’s seeing more buyers come up with creative solutions. “I’ve even had agents write up offers where they offer to have a champagne brunch at closing,” Hudson said. “You never know what’s going to sway a seller.”
• Always ask for an inspection: Jim Clabo, owner of A-Pro Home Inspection Services, said even amid market mania, it’s never a good idea to skip inspection. “Inspection can save you hundreds of thousands of dollars. At the very least, it gives buyers peace of mind.” Clabo advised new buyers to expect inspections to take a week because of delays. 
• What’s meant to be will be: Hudson said she encourages her clients to have patience on their homebuying journeys. “Lord knows we all need it right now,” Hudson said.

From one first-timer to another

Fox’s homebuying experience ended quickly, and she counts herself among the lucky ones. She worked for years to achieve her money goals, which helped her prepare to purchase a place. What really made the difference was timing. 

The North Knoxville house Fox bought appeared back on the market after the first buyer’s financing fell through. Fox bid above asking price, but the appraisal came in under the cost she offered. The owners were desperate to close quickly and accepted the appraisal price. 

Since then, Fox and her husband have been fixing up the place to make it their own. Fox said she wouldn’t trade the stress of homebuying, though. 

“(Owning a home) means certainty and stability with my housing. I’m in control of what happens or doesn’t happen with my living space, and it just feels so much more secure than if I was renting,” Fox said.