UAB Professor Shares Trends and Tips for First-Time Homebuyers

A UAB professor in the Department of Accounting and Finance shares whether 2025 will be any easier for homebuyers and provides advice for first-time homebuyers. (Adobe Stock)
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By Tehreem Khan | UAB News

Homebuying for first-timers can be a daunting financial decision, given complex negotiations and financial mazes. But it does not have to be.

Christopher Edmonds, Ph.D., professor in the Department of Accounting and Finance at the University of Alabama at Birmingham Collat School of Business, shares whether 2025 will be any easier for homebuyers and provides advice for first-time homebuyers.

Trends

Edmonds says housing is not as expensive as it seems. He urges first-time buyers not to be discouraged by headlines proclaiming housing unaffordability. In reality, the current market is more accessible than many believe.

“The perception of unaffordability stems largely from comparing today’s rates and prices to the unusually low levels we experienced in the last decade,” Edmonds said. “The Housing Affordability Index, which measures this balance, currently reads 100.7, just over the 100 benchmark that indicates a median-income family can secure a mortgage for a median-priced home.”

However, local market conditions can vary significantly, and in some areas, rising prices have pushed homes into an unaffordable territory despite the overall national balance. In these areas, Edmonds says, affordability will remain a challenge in 2025. He predicts prices to remain high and mortgage rates to slightly decline but remain higher than pre-pandemic levels. Inventory is slowly recovering from the bottom level hit in 2022 but remains considerably low compared to historical averages.

In response to these challenges is a growing new strategy –– co-buying. Co-buying is when two or more people purchase and own a property together, making homeownership more affordable and accessible. According to Edmonds, this practice can help first-time homebuyers afford a better home by splitting the down payment, mortgage and other ongoing costs while building equity together.

“With rising home prices, high mortgage rates and strict lending requirements, many single homebuyers with one source of income are finding it difficult to afford a home on their own,” Edmonds said. “Co-buying can provide shared responsibility for maintenance and expenses, reducing financial strain.”

However, when co-buying, it is essential to have a clear legal agreement outlining ownership shares, exit strategies and responsibilities to avoid future disputes.

Another useful strategy for individuals with limited cash is sweat equity –– the value added to a house through hard work, rather than financial investment. Edmonds says this investment can yield substantial returns.

“Buying a fixer-upper, meaning a house in need of repairs in a desirable area within budget, can be a smart investment, as strategic renovations can significantly increase a home’s value,” Edmonds said.

Loan choices

According to Edmonds, the choice between fixed- and adjustable-rate mortgages for first-time homebuyers largely depends on their comfort with risk and plans.

“Fixed-rate loans offer predictable monthly payments and steady interest rates, ideal for people who plan to stay in the house long term or prefer financial consistency,” Edmonds said. “Adjustable-rate mortgages typically start with lower rates but can increase after an initial period, which works well for people planning to move or refinance before any rate adjustments occur.”

Another common trend in today’s first-time homebuyer market is private mortgage insurance, or PMI, which allows first-time homebuyers to purchase a home with a less than 20 percent down payment.

According to Edmonds, PMI enables homeownership and equity building sooner rather than waiting years to save. However, it comes at an extra cost –– increasing monthly housing costs.

“PMI typically adds 0.3 percent to 1.5 percent of the loan amount annually, and removing it can take years unless home values rise significantly or extra payments are made,” Edmonds said.

To minimize the impact of PMI, Edmonds recommends exploring loan options like the Veteran Affairs or the United States Department of Agriculture loans that do not require these payments.

“PMI can be a useful tool for getting into a home sooner, but buyers should have a strategy to eliminate it as quickly as possible,” Edmonds said. “Some lenders offer lender-paid PMI in exchange for a slightly higher interest rate, but this can be more expensive over time. If PMI is necessary, request cancellation as soon as 20 percent equity is reached.”

15-year versus 30-year mortgage

A person’s current financial situation and long-term goals are key considerations when deciding between a 15-year or 30-year mortgage, Edmonds says.

“A 15-year mortgage allows you to build equity faster and save significantly on interest, but it comes with higher monthly payments,” Edmonds said. “On the other hand, a 30-year mortgage offers lower monthly payments and more flexibility, although the buyer will pay more interest over time.”

Documents checklist for first-time homebuyers

Proof of income (W-2, tax returns and pay stubs)
Credit reports
Bank statements
Proof of employment
List of debts and assets
Pre-approval documents from a lender
If receiving financial help from family, a gift letter confirming no repayment is required.

Edmonds recommends starting by assessing financial health, setting a budget and getting pre-approved for a mortgage to understand borrowing limits, researching neighborhoods, and working with a trusted real estate agent. Following are some additional tips:

Know your “true” budget. Consider property taxes, insurance, homeowners association fees, maintenance and utility costs along with mortgage. Use a mortgage calculator to estimate monthly expenses realistically.
Improve your credit score. A higher credit score gets better interest rates, saving thousands over the life of the loan. Pay down debts, avoid new loans and check credit report for errors before applying.
Get the home inspected. Even if a home looks perfect, unseen issues like foundation problems, plumbing issues or outdated electrical systems can become costly.
Shop around for mortgages. Compare rates from multiple lenders including banks, credit unions and online lenders to find the best terms. Focus on the annual percentage rate, which provides a holistic view of the interest rate.
Be prepared for the unexpected. Set aside extra funds for repairs and emergencies. Homeownership often comes with surprise costs, so having an emergency fund can prevent financial strain.
Negotiate and understand the offer. Negotiation is key — discuss the price, closing costs or necessary repairs. A skilled real estate agent can help you craft a competitive yet reasonable offer while ensuring you understand all contract terms before signing. However, in today’s tight real estate market, expect competition from multiple buyers, which may limit negotiating power.
Think long-term. Consider how long you plan to stay in the home and whether it fits your future lifestyle and financial goals.
Avoid major financial changes before closing. Lenders check financial status again before finalizing the loan. Avoid taking on new debt, changing jobs or making large purchases like a new car before closing, as it can impact your loan approval.