While today’s housing market is not in the buyer’s favor, people are still purchasing homes. Most potential buyers will need a mortgage and there are many steps to this process. When deciding if this step is right for you, take into consideration the following things regarding the process.
Now may still be a good time to buy a home
This is a personal decision, there is no right or wrong time to purchase a home in general. Whether a buyer’s market or a seller’s market you should take the leap when it makes the best sense in your life. Ann Thomspon, with Bank of America, says that consumers will always want to purchase a home and need to purchase a home.
Especially with the changes we have seen in the last year due to COVID-19, our home has become our live, work and play space. People have placed a greater emphasis on the value of a home.
“A second bedroom that can be used as a home office, or an outdoor space, are now more desired, prompting many people to move or buy for the first time,” says Rick Rudman, CEO at Curbio, a home renovation technology company.
Get pre-approved ASAP
The first step before even looking at listings is to see how much home you can afford. Pre-approval is the first step to let you know what you can afford and to prove to others that you are financially able.
In the current seller’s market, a buyer needs to prove to agents and sellers that they are serious. “These days, in some markets, you need a pre-approval just to start looking at homes,” says Ann Thompson, retail sales executive of the West with Bank of America.
Prepare for bidding wars ahead of time
A seller’s market means bidding wars are inevitable. The record-low mortgage rates coupled with low inventory is causing a panic among buyers. Sellers are entertaining multiple offers, many receiving multiple all-cash offers.
“Potential buyers now should prepare themselves by discussing, with their real estate agent, how much a home is worth beforehand, so that they can go into a bidding war with the strongest offer tactics, while also knowing when to back away if the price escalates,” says Thompson.
Understand appraisal gaps
With bidding wars comes bids over the asking price. These high bids cause appraisal gaps. An appraisal gap is a disparity between the offer you put on a property and what the property is deemed to be worth by a lender. Even if you are approved for $350,000 and you offer $350,000 on a $300,000 listing price that doesn’t mean the lender will give you the full $350,000 on the home. If the appraisal comes in at $300,000, you will have to come up with the $50,000 out of pocket.
“In this market, we are seeing a lot of appraisal gaps being written into contracts. Please be sure to understand how that works before agreeing to it,” says Shanon Schinkel, branch manager and mortgage lender at HomeTown. “Also, check with your lender before agreeing to it. Using that money for an appraisal gap can change your ability to qualify.”
Keep track of changing rates and terms
Today’s mortgage rates are beginning to rise and the historical low rates we have seen in the last year will be a thing of the past. Schinkel reports that over the last six weeks, the rates have crept up. You will want to keep track of where the rates are and where they will be going during your home buying process. Shop around for rates and terms for the best deal.
Research down payment assistance programs
This market is hard for buyers but especially challenging for new home buyers. Down payment assistant programs can help. There are programs offered through government organizations and private agencies. You will want to research all of these avenues to see if you are eligible.
“There is a shortage of houses in many markets. This is creating bidding wars, offers over asking, and appraisal gaps—houses are going quickly,” says Schinkel. “But there are still many great opportunities if you’re patient and have a great real estate agent and lender.”