By Veronica Dagher
Feb 4, 2022

(Photo by Ross Martin for The Wall Street Journal)

Buying a first home is always stressful. Buying now, with property price increases eating into savings and inflation driving up the cost of home repairs, is proving to be particularly costly for some first-time buyers.

New buyers are putting more money into down payments and increased closing costs as prices go up. To compete in the current market, buyers are also waiving inspections and making fast deals, brokers say—decisions that pose big risks and potentially bigger costs.

Waiving an inspection can often mean buyers face needed repairs shortly after moving in, just when budgets are already stretched thin. And the cost of those repairs is higher than usual right now, thanks to labor shortages and inflation pushing up the price of goods. Inflation rose 7% in December, as prices for appliances, household furnishings and household operations all increased.

First-time buyers also tend to have lower credit scores—a median of 720 versus 753 for repeat buyers, according to federal mortgage data compiled by the American Enterprise Institute. The lower the credit score, the higher the interest rate, so those new buyers are paying more every month on their mortgage than more creditworthy buyers would.

“First-time home buyers are least equipped to do things like waive an inspection or overbid,” said Ed Pinto, director of the AEI Housing Center.

Kathleen Jacob and her boyfriend Eric Hilt lost three different Nashville, Tenn., houses to higher bidders, despite offering more than $40,000 over ask on some of the homes. Last summer, the couple was thrilled when their $461,000 offer was chosen for a 112-year-old 1,100-square-foot house. The seller had two conditions: waive the inspection and promise to go through with the deal even if the property was appraised below the purchase price.

They did it anyway.

“Some people will say you’re crazy,” said Ms. Jacob, a 30-year-old public information officer.

“But when there are 12 to 15 other offers on the same house you’re forced to waive to stay competitive.”

On the couple’s moving day, a 95-degree scorcher, the home’s central air-conditioning unit gave out.

The new unit and installation cost about $7,000, and they opted for a payment plan that offered zero interest for five years. The couple still had roughly $15,000 left in their emergency account but decided to finance the new system so they could pay for any other unexpected expenses.

First-time buyers made up 34% of all home buyers in 2021, compared with 31% in 2020, according to a National Association of Realtors survey. Nationwide, first-time home buyers paid a median price of $252,000 in 2021, more than 9.5% higher than in 2020, said NAR. Recently sold homes were on the market for a median of one week, a drop from three weeks in 2020, the survey found.

Natalie Lvova and her husband Lev Blinchik said they had 15 minutes to walk through their home in Highlands Ranch, Colo., before they had to decide whether to make an offer.

They didn’t notice that many of the home’s windows didn’t open or close properly. They had an inspection, but the inspector missed the window problems, Ms. Lvova said. The next shock came with the quotes for repairing the windows: roughly $50,000.

Ms. Lvova, 44, had budgeted about $15,000. The couple is going in phases, repairing windows in the bedrooms and living room first and paying for the fixes with credit cards.

Ms. Lvova is hardly alone in facing rising costs. The average cost to care for a single-family home rose 9.3% to $4,886 in 2021, compared with the prior year, driven in part by labor and material shortages, according to online-services marketplace Thumbtack Inc.

Cheryl Costa, a financial planner in Framingham, Mass., said she advises clients to budget for maintenance and repairs totaling 1% to 3% of the home’s value every year. For a $500,000 house that is $5,000 to $15,000.

Ms. Costa recommends speaking to prospective neighbors to ask about flooding; bringing a home inspector along for the tour if sellers seem likely to demand waiving an inspection; and asking questions about anything that seems odd in the disclosures on the home’s listing. While touring the house, take a picture of the hot-water heater, she suggested. It usually has a tag on it from the most recent servicer, and a buyer can try to contact that company to get more information about the system, she said.

About a year and a half ago, Max Sturm, 34, and his wife Gabrielle Sturm, 31, thought they had found their dream home, a three-bedroom house with a finished basement in Montclair, N.J.

About three weeks before closing, they learned they would need flood insurance. Neither the real-estate agent nor the seller had disclosed the home was in a flood zone.

Further investigation uncovered that prior owners had filed flood-related claims with the Federal Emergency Management Agency. The couple was eventually able to get the seller to return their $60,000 deposit and terminate the contract.

The Sturms are now renting in East Rutherford, N.J., until the housing market cools down—and they regain their nerve.

“We’re still rocked from that first-time experience,” Mr. Sturm said.