Even with COVID-19 affecting so much of society, one area that has performed well is real estate, specifically home purchases. Leading into the pandemic, the number of homes on the market was at historic lows, creating a seller’s market. Since then, interest rates have plummeted to never-before-seen territory. Add in the desirability of having your own piece of land – not just a condo or apartment where you’re exposed to others in your building – and housing has rebounded well. Below are some ways you can still get a good deal in a market this hot.
First, is it the right time for you to buy?
Yes interest rates are low, but are you planning to be in the same city for the next five to ten years? Are you sure you want the headaches that come with home ownership? Before you start looking at houses or finding an agent, think about what you want out of a house and if you plan to stay long enough to recoup your initial costs.
Get your financial house in order
Credit Score. As with any other loan, your three-digit credit score will weigh heavily on whether you are approved or denied. Check your score, and if it’s not where you think it should be investigate why. Pull your credit reports to look for errors. Should you find any, contact the credit bureaus immediately. They are notoriously slow in making corrections to your credit report, and you need the best possible score when you apply for a loan.
Down payment. How much have you saved for your down payment? Many loans with the best rates require 20% down payments. While you can find loans that don’t, you will be required to pay private mortgage insurance (PMI) until you reach the 20% threshold.
The mortgage process. Before you call anyone regarding a mortgage, take 20 minutes and research how it works. Look at the attributes that lenders want in an applicant (steady job, relatively low debt, etc.), read up on the different loan options available, and take a minute to review the process of going from signing a contract to receiving the keys.
Contact a lender. Call a lender for a preapproval letter. Having that letter in hand will help your offer stand out against those buyers who haven’t been preapproved. Warning: Banks and lenders are notorious for saying you can afford more house than would be prudent. Don’t believe the preapproval letter amount – look at your income and aim to keep all home costs at or under 28% of your pretax income.
Go to a few open houses in several different neighborhoods
Especially if you are a first-time buyer or new to the area, visiting open houses will help you understand how much houses with your preferred amenities are selling for and how prices may differ among neighborhoods. While you’re there, you can firm up your list of needs and wants too; maybe having a deck isn’t as important as you first thought. Plus you may hit it off with an agent if you’re looking for a buyer’s agent.
Decide if you need a buyer’s agent
Some people swear by buyer’s agents. Others find sellers more willing to negotiate on price if they don’t have to pay the 3% commission to your agent. This is purely a personal decision. If you’re a first-time buyer, a buyer’s agent may help smooth out the process and manage your concerns. Plus they do the work of setting up house visits – you don’t have to call the listing agents to see the house.
Start shopping
In a cooler market, you can wait to see homes. However with today’s market, a new listing may be gone by the next day, much less the following weekend. Be ready to jump if there’s a house that fits your needs and provides most of your wants.
As you see more houses and narrow down your wish list, don’t waste time going to homes that are overpriced or don’t have the necessities you want. Some agents will just show you whatever’s available while others preview homes to make sure they are right for you. Your agent should be showing you houses that fit your needs throughout your price range (not only those at the top or over). Review listings on your own to make sure the agent is showing you all the houses that meet your criteria. Online realtors will email daily new listings or those that have gone under contract within a specific geographic area.
And watch what you say while you’re touring the house and after, even with your agent. While your agent may seem like a new friend, their goal is to make the sale. Chances are you won’t see them again so most won’t hesitate to use whatever they can to close the deal.
Hard to go wrong with good schools…
When searching the areas you’re interested in, if you find two that are a toss-up, it’s hard to go wrong with moving into the neighborhood with better schools. The top schools tend to attract the top students, which in turn keeps them on top. Even if you don’t have kids yet – or aren’t planning to – houses in a good school district should maintain their value or appreciate more than houses in a lesser school district.
…and the lowest priced house in a good neighborhood
One often quoted “truism” is to buy the lowest priced house in the best neighborhood you can afford. Obviously if money is no object this isn’t a necessity. But if you’re planning to be somewhere for years (or your lifetime) and don’t mind renovations, buying the cheapest house can offer outsized returns.
Make your offer
Written agreement. In many states if you don’t put it in writing there’s no agreement, even if you shook hands with the seller. This applies not only to the sales price, but also to that cute lamp or pool table that you want. All facets of the deal must be in writing and signed by both parties.
Possession. In addition to the house and furniture, possession is a major negotiating point. Some sellers may want to keep the house for a few weeks and rent it back, or at the very least have it for a few days after closing so they can move out. Many buyers want the keys at closing. Think about how you want to take possession and if there’s any wiggle room.
Don’t be forced into “yes”. If you don’t feel comfortable with ANY part of the deal, don’t just sign it and hope that it works out. Remember, once it’s signed, it’s a contract that will be difficult to get out of. No matter how much you love a house, there are others out there. If your stomach feels off when you’re reading through the contract, figure out why and work it out with the agent to resolve any issues before you sign.
Start the mortgage process
While I’ve written in depth about how to get a mortgage, there are a couple of things to keep in mind. One, call at least three brokers or banks. Use the same parameters for each – for instance, if you are looking at a 30-year fixed and a 10-year adjustable, ask only about those products. Finally, make sure you ask them the same questions about closing costs, timelines, rate locks, etc.
Note – just because you’re preapproved through one lender doesn’t mean you have to stick with them. Call them back if you want but let them know you’re negotiating with three companies and need their best offer.
Get an inspection and negotiate any issues
I’ve always had an inspection when I purchased a home. Some of them were better than others, but at the very least each one helped me locate the water turnoff and the HVAC filter.
The inspector will find deficiencies, no matter the house. The question then becomes what is a real issue versus what should be expected in a preowned home. A cracked heat exchanger in the furnace is definitely one to get fixed. A loose railing that you can fix on your own? Probably less of an issue. Some people prefer to have the items repaired; others want money so they can do the repairs on their own.
Final walkthrough
A lot of people skip this step. However, if you’ve asked for repairs after the inspection, the only way to know that they’ve been completed is to walk through the house shortly before closing. Take a list of what should be done so you don’t forget anything. It’s much easier to get any remaining items completed before closing.
Closing
Before COVID-19, closings were often in a conference room with you on one side, the sellers on the other, and a lawyer with stacks of papers and blue pens. Since then, closings have gone online with only essential signatures required, often with people meeting in parking lots or outside the lawyer’s office. Whatever the case, you will read through lots of documents and possibly sign until your hand hurts.
Congratulations!
You own a new home! Time to do initial renovations, paint, clean the carpets, or just move in. Whatever you decide, here’s to many happy years in your new home.
Photo by Scott Webb