When Laura Kennedy set out to buy her first home this year, she did everything right. Kennedy, 25, saved up a down payment, earned a solid credit score, and found a home that she could afford.
Now Kennedy is trapped in housing limbo, unable to close on the home she wants but unwilling to walk away and lose the money she's invested so far. The Tamaqua house she is attempting to buy is worth less than the seller's mortgage, which means that the seller's bank must accept a "short sale" or risk the house going into foreclosure.
While short sales are still relatively rare, they represent an ongoing struggle for homebuyers in today's market. These first-time buyers are young, just starting out in their professional career. But while these young adults have steady income and good credit scores, they've been thwarted in their attempt to partake in the American dream of homeownership.
Across Carbon County, in Lehighton, another young couple faces a similar problem. Jonathan Rodgers and Keith Shelly, both in their late 20s, have been attempting to purchase a home since early this year.
Their first offers fell through because the appraisal was less than what they had offered for the home. They have also had difficulty applying for a mortgage, thanks to new financing laws, and finding a home that meets the bank's standards. The couple has now tried to close on three separate homes in the Lehighton area, meeting roadblocks with each attempt.
For Rodgers, his frustration lies in the fact that both he and Shelly have solid employment histories and maintain both stable full-time jobs and part-time employment to pay down student loans.
"I see families with little to no income buying and moving much more quickly than two people working in the professional realm," said Rodgers. "We are lucky to have had family in the area when we were forced to search for a home."
Their quest for homeownership hasn't come cheap. It's cost the couple extra rent and utilities. They also needed to rent storage space once their rental contract expired and they moved back home with Rodgers' parents.
"This all totaled over $4,000, and has put me in my parents' attic with nothing of my own being available to me," he said. The two now share a home with four other adults and one child, taking turns on the home's one computer and shower.
Throughout the past year, Rodgers and Shelly have remained optimistic. Their determination may pay off soon.
"We are finally seeing a possible light at the end of the tunnel. We have made it to the final stages of a loan for yet another house," he added.
Realtors across the region are reporting an increase in first-time buyers. Many of these potential home buyers are young adults, either couples with no children or single men and women, looking to take advantage of the First-Time Homebuyer Credit. But these young adults are quickly discovering that today's market can be tough on buyers, not just sellers. They've hit problems that are all too familiar to Kennedy, Rodgers and Shelly, such as too-low appraisals, tightened lender standards, and difficulty understanding the home-buying process.
"Appraisals, in some cases, are coming in lower than the agreed upon sale price," said Gail Christman, the owner of Gene Durigan Real Estate in Lehighton. The way that banks hire appraisers has changed this year, and as a result some appraisers are working in geographical areas that they are no familiar with, she said. Some appraisers are using foreclosed homes, sold at a steep discount, to calculate the value of other homes on the market. Others are feeling the fallout of the mortgage crisis, when foreclosures on properties with too-high appraisals caused a near collapse in the financial industry. Many are now playing it safe and finding that homes are worth less.
"There is little a buyer can do unless the lender will allow a second appraisal, which is an additional cost," she added. The buyer can attempt to negotiate the price down to the home's appraised value, or agree to pay out of pocket for the amount above the appraisal. These choices will depend on their financial position and desire to own the property.
Buyers who do receive an appraisal that meets their purchase price may find that lenders are more cautious, said Christman.
"A lender wants to see that a potential buyer can pay their bills, and that they want to pay their bills," she emphasized. "Traditional factors such as a good credit score and job security are perhaps more important than ever."
Lenders are also taking the time to fully review mortgage applications, even after they have provided a loan commitment letter to the buyer.
"There are occasions when the closing department of the lender is still making decisions up until the day of proposed settlement," said Christman. "Some of these (settlements) are extended until more information is verified, and some are canceled completely."
First-time buyers in Carbon County are fortunate because our area continues to qualify for rural housing programs, which allow homeowners to purchase a home with no down payment. Federal Housing Administration (FHA) and active and retired veteran loan programs can also help homeowners qualify for a mortgage with a small down payment.
"Many clients have the monthly income to afford a mortgage, but haven't been able to build savings for a down payment," said Christman. "There are loan programs available in rural communities in which you can finance 100 percent of the purchase. Many first-time buyers have taken advantage of this program."
The key to a successful home-buying experience may be to enter the process with patience and a local realtor who understands the current market, said Christman.
If you asked Kennedy, she might agree that patience is key. She first started looking for a home in March in order to qualify for the First-Time Homebuyer Credit. By April 15, she had completed the paperwork to purchase a "short sale" home before the tax credit deadline in November. The deadline has since been extended to June 2010.
"I thought I would have plenty of time," she said. "I was told that we would close by the end of July, and hopefully move in by the end of September. That hasn't happened."
While the average short sale takes about three months or less to complete, Kennedy has struggled for more than seven months to get the sale approved or denied by the national bank holding the home's mortgage. Both Kennedy and the sellers contacted the lender regularly looking for updates, but the bank has stopped returning their phone calls.
Kennedy is stunned by the situation and unsure where to turn.
"I just wanted to get the ball rolling and get this done," she said. "I have had money in escrow since the beginning of March."
In preparation for buying the house, she began purchasing things for her new home and storing them at her parents' house in Summit Hill, where she is currently living. The house and garage are now bursting at the seams with two home's worth of furniture and small appliances. She's thankful for her parents' patience, but wonders what adults who cannot move back home would do.
For now, Kennedy is trying to stay patient and work through the process. If she drops out of the sale, she may lose her escrow deposit funds. She's already lost money on the house through a home inspection and mortgage application fee. Both the inspection and mortgage approval have now expired, which means she will have to start those processes again if the short sale is approved.
"I'm torn. I want to just move on and find another house, but I have so much time and money invested in this one," she said. "I don't ever want to go through this again. I knew going into this that a short sale would take longer. I educated myself and thought that it would be no problem, and that we would probably close in 90 days."
"I was really looking forward to moving in and becoming a homeowner."