How to Overcome the Obstacles to First-Time Homeownership

If you’re thinking about becoming a first-time homeowner, you probably have a lot of questions about the process. What credit score do you need to buy a home? Can you buy a home without saving a down payment? What about closing costs, mortgage insurance, and property taxes?

For some people, the questions associated with first-time homeownership are so daunting that they procrastinate on the process—or decide that homeownership isn’t for them. This issue is compounded for young people who don’t have a family history of homeownership, as well as people from socioeconomic and racial groups that have been historically disenfranchised by banks. According to U.S. Census data, the national homeownership rate is 66 percent—but white adults are 71 percent likely to be homeowners, and Black and Hispanic adults are only 46 percent likely to own homes.

That’s why we brought in an expert who understands not only the importance of building financial equity through homeownership, but also the process of building racial and social equity by helping more people buy homes.

Lisa Frison is the Head of Financial Inclusion and Racial Equity at Citi. She is very familiar with the obstacles that keep many young people from pursuing homeownership—and she has years of experience helping first-time homeowners overcome those obstacles and find affordable first homes.

We asked Frison about some of the biggest financial, mental, and social issues that can prevent people from becoming first-time homeowners. We asked her what young people can do to minimize the stress associated with the down payment, as well as how first-time homeowners can keep up with the long-term costs of maintaining a home.

Most importantly, we asked Frison how to approach homeownership if you’re not only a first-time homeowner, but also the first person in your family to consider buying a home.

Our questions—and her answers—are below.

Get educated on the process first

Dwell: What is the biggest financial obstacle that prevents people from becoming first-time homeowners?

Lisa Frison: Affordability, which is partially driven by the housing market, interest rates, and supply and demand. At the individual level, saving for a down payment and closing costs can be a huge obstacle, not to mention additional costs beyond the mortgage principal and interest such as homeowners’ insurance, taxes, and private mortgage insurance.

One of the best ways for aspiring homeowners to overcome the affordability obstacle is by seeking out ways to become educated on how the process works. Prospective homebuyers should meet with several lenders and non-profit agencies to research what programs or products are available in the market they are purchasing in. For example, many lenders have programs that allow for small down payments and also offer either grants or closing cost assistance. Some lenders, including Citi, work with non-profit organizations that offer grants or down payment assistance. More broadly, lenders, non-profit experts, and other local education providers are excellent resources for helping aspiring buyers determine how much they can afford to borrow, how much they need to save for a down payment, what to know about their credit score prior to applying for a loan, and what the availability is like for down payment grants and/or subsidies.

From there, getting pre-approved is a good way to get a clear sense of what you can realistically afford, and it provides a great baseline to account for all of the costs you’ll need to handle beyond the mortgage including estimated utilities, maintenance, and repairs.

By learning how the process works and what options are available, prospective buyers can use that education to more easily navigate the path to homeownership and push through any barriers along the way.

Conquer your fears and embrace uncertainty

Dwell: What are some of the mental challenges people face when thinking about home ownership?

LF: Oftentimes, the biggest mental obstacle is fear, along with uncertainty around how the current economic environment might impact that goal. Today, many prospective buyers are fearful of unknowns related to rising home prices and mortgage rates. On top of that, many are questioning their ability to purchase a home in the first place, as well as whether they’ll be able to keep up with the long-term costs that would come with ownership.

That fear is clear in many of our conversations with clients. We are often told that the prospect of becoming a first-time homeowner feels overwhelming or daunting. That anxiety can develop into inertia if you’re not sure where to start, especially if you come from a family or community with low rates of homeownership and few real-life examples of people you identify with who own homes.

Similar to the financial barriers challenge, the best way to overcome this mental obstacle is through education and homebuyer counseling. What’s great about counseling, in particular, is that it equips aspiring buyers with strategies for realistic budgeting, prioritizing what’s a "want" versus a "need" for the future home, and securing the right mortgage for their unique situation. Not to mention, many counseling resources go beyond just advising on how to buy and also provide post-purchase education and guidance once the deal is done.

Another piece of advice I’d give to buyers who might be overwhelmed by the process: remember, you’re in control. Take this opportunity to thoroughly vet your purchase, explore the neighborhood you want to buy in, and even practice your commute to the places where you plan to go most often. Give yourself permission to really consider the short- and long-term implications of the purchase, and think about your horizon—from how long you plan to stay in the property, to your exit strategy. Ultimately, purchasing a home is your decision, and yours to make as you see fit.

Finally, the key thing to remember is that homeownership offers an excellent path not only towards having a place to call your own, but also towards building wealth and a legacy for you and your loved ones. When things get overwhelming, that bigger picture outlook can make all the difference in motivating you to continue working through the process.

Ask questions and remember that you’re not on your own.  

Dwell: What are some social roadblocks that stand in people’s way?

LF: The shift from being a renter to an owner brings a different level of accountability, and you may feel like you’re on your own. To avoid feeling this way in the first place, make sure to ask questions about things you don’t understand, especially before you sign anything. Pay close attention to your HOA covenants and your homeowners’ insurance policy to understand your rights and obligations. Be proactive about finding a good network of professionals before you need them. This can help you be more prepared for the unexpected.

Overall, the best way to overcome this particular mental obstacle is through attaining financial literacy, which—among other things—helps aspiring buyers understand both the advantages and disadvantages that come with homeownership. As I mentioned earlier, one of the most important—if not the most important—benefits of purchasing a home is the opportunity it gives you (and your family) to build generational wealth. However, homeownership is a long-term commitment; so if you’re not mentally prepared to stop renting, then that’s something to consider before taking the leap.

It’s okay to ask for help

Dwell: How can someone be really and truly prepared to buy their first home?

LF: There is no one-size-fits-all answer to this question. But if you’re interested in becoming a homeowner, it’s always a good time to check in with a mortgage lender who can provide a realistic view of what you can afford through prequalification, and also let you know if you qualify for lender assistance so that you’re ready to make your move.

Most importantly, I encourage aspiring buyers to remember that homeownership is not something you should do in isolation—it really does take a village. So get comfortable asking for and accepting help.

In addition to reaching out to qualified professionals in your community, make sure to talk to your neighbors, family, and friends. There’s a good chance that they’ve been in a similar situation before and can help you avoid pitfalls and mistakes. Not to mention, they can offer you the emotional support you need throughout each step of your journey and help you stay on track towards purchasing your very own home—and building wealth for generations to come.

Read more:

How a Potential Recession Should Affect Your Housing Decisions

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