Becoming a homeowner now requires six figures: $200,000 over budget for a 31-year-old.

In early 2024, Kelly Diehr and her spouse planned to purchase their first house in Denver.

The couple, without children, a six-figure income, and a $600,000 budget, felt secure enough to purchase a detached home for their family.

Disappointed by their limited budget, first-time homebuyers found it challenging to afford the rising median home prices, which increased from $599,000 to $639,000 between January and May, according to Realtor.com. Additionally, mortgage rates were "crazy" at the time, hovering just under 7%.

All the homes available for $600,000 were over 20 years old, located in less-desirable neighborhoods and needed extensive renovations, including new flooring, kitchens, and bathrooms.

According to Diehr, a communications professional who recently turned 31, when you enter the market, you come to the realization that you have to give up on the ideal home you thought you were going to get because six figures nowadays is not enough to buy a home.

Since 2020, Denver's home prices have increased significantly, but the market has cooled somewhat in the past year. This trend is mirrored in other large metro areas, where rapid price increases and high mortgage rates have hindered many first-time millennial buyers, including those with strong incomes like Diehr and her husband.

The couple had to compromise their original budget plan and stretch it further due to being first-time buyers.

Spending more money to make a home more affordable

To improve their chances of winning the competition, Diehr and her husband decided to allocate more funds to search for updated options in Denver.

To expand their options, they had to dip into their retirement investments, which they hadn't originally planned to do.

In April 2024, the couple discovered a three-bedroom house that they found appealing. The house was newly constructed and came with all the benefits of a new home. Additionally, the seller was offering a credit of $47,000. Such concessions are typical in new developments, where developers frequently need to sell units rapidly, even in a competitive market like Denver.

The property was purchased for $789,000, with the seller credit used to lower their mortgage rate.

This practice, commonly referred to as "buying points" or "discount points," enables borrowers to pay an initial fee to a lender in exchange for a reduced interest rate. It has become increasingly popular, with approximately 47% of buyers opting for this strategy in 2023, compared to 27% in 2019.

Diehr and her spouse chose a temporary buydown, which decreased their mortgage rate by two percentage points, from 6.25% to 4.25%, in the first year of the loan. In the second year, the rate will increase slightly, but still benefit from a one percentage point reduction. This tactic saved them approximately $800 per month, lowering their mortgage from $5,500 to $4,700.

"The money saved has enabled us to cover other expenses related to new construction, including blinds and our backyard, and it's also helping us build a financial cushion for the arrival of our first baby in March," says Diehr.

Although Diehr is happy they were able to purchase a home, the downside was depleting their retirement savings and overspending by approximately $200,000.

""We paid $600,000 for a home with three bedrooms, all-wood floors, two bathrooms, and a decent backyard, but it is not a turn-key home," she says."

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