Q: What are some tips for first-time homebuyers in this spring’s busy housing market?
Spring is the season of new beginnings. That’s appropriate as it’s also the kickoff to the busy housing market. Here’s what first-time buyers need to know to have the best chance of purchasing a home this season.
1. Be prepared for competition
While homes aren’t selling as fast as they were during the peak of the COVID-19 pandemic, it’s still a seller’s market in most of the country. That means you’re likely to face heavy competition from fellow buyers, especially if you’re eyeing an affordably priced, move-in ready home in a good location.
These properties are likely to sell quickly, often in bidding wars, and for more than the asking price.
That’s why first-time buyers should be prepared. Know your local market, how often homes in your price range go up for sale, if the homes typically sell for over or under the asking price (and by how much), and how fast they sell. This knowledge is power that can help get your offer accepted.
If your budget is limited, see if there’s anything else you could offer the sellers to sweeten the deal. Maybe you can close quickly or contribute a larger down payment?
2. Get pre-approved for a mortgage
This one is key. If you start shopping online or showing up at open houses, you might just find The One. But if you don’t have a pre-approval letter from a lender, you could lose out on the home of your dreams, especially in a competitive market.
This letter shows sellers that you’re a serious buyer who should be able to qualify for a mortgage. If there are multiple offers on a home, sellers are apt to pick buyers who can pay in cash or can prove they will be able to secure financing.
The process is also helpful for many buyers to see how large of a loan they can qualify for—if at all.
Counterintuitively, it’s also good to pay down as much debt as you can, even if you’re focused on saving up for a down payment, before seeking a pre-approval. You also want to bring up your credit score. That’s because the less debt you have and the higher your credit score, the more likely you are to be approved for a higher amount.
3. Don’t wait for President Joe Biden’s $4oo monthly tax credit
It’s probably best not to hold your breath for the $400 a month tax credit, good for two years, that President Joe Biden mentioned in the State of the Union last month.
While it would be a boon for first-time buyers, the proposal hasn’t been approved by Congress yet. It’s likely to face an uphill battle.
Additionally, while that extra money in your pocket might sound great, it’s likely to incentivize more buyers to jump into the market. More buyers equals more competition for a very limited supply of housing. That could result in more bidding wars, offers over the asking price, and higher home prices.
4. Expect mortgage rates won’t meaningfully fall this spring
Many buyers had hoped mortgage rates would fall this spring. It looked promising for a while, too, as they dropped about a percentage point at the end of last year.
But rates have been rising recently and just pushed past 7% again. The reason: Inflation is once again ticking up. So the Fed is expected to keep rates higher for longer, which means mortgage rates are expected to stay elevated.
5. Apply for down payment assistance
This is a no-brainer. Why wouldn’t you want free money that you can put toward your down payment and often closing costs as well?
Across the country, there are more than 2,000 down payment assistance programs. Buyers can qualify for them based on their incomes, professions, military service, disabilities, where they hope to buy, as well as many other factors.
Just remember to read the fine print. Some programs require you to live in the home for a set time or use it as your primary home. If you violate any of the conditions, you could be on the hook for paying that money back.
Check out how much you might be eligible for here.
6. Consider new construction
Many first-time buyers don’t even consider new construction because they assume it’s too expensive.
However, many builders have recently been focused on putting up smaller, more affordable units. Some are also offering lower mortgage rates, which can save buyers big money.
Even brand-new abodes with higher price tags might offer lower monthly mortgage payments than older properties. Some larger builders are now buying down rates for two or three years—or for the full 30 years of a fixed-rate loan. Smaller ones might also be offering their own discounts.
It doesn’t hurt to find out because it might just pay to look beyond the sticker price.
7. Negotiate as much as possible
I’m a huge fan of this last tip: Don’t be afraid to haggle with your seller, builder, or even your mortgage company. You won’t know how much you could save until you ask.
In some slower markets, sellers might be willing to lower the price or even contribute to your closing costs. Or perhaps they’re willing to make costly repairs or improvements so that money doesn’t have to come out of your budget.
Builders might be willing to buy down your mortgage rate or throw in an upgrade or two. And shopping around for a mortgage could save you thousands of dollars. Some lenders will even match offers from competing mortgage companies.
But you should realize that if you’re putting in an offer on a move-in ready home at a lower price that has lots of other interested buyers, the sellers might be less willing to negotiate with you.
This post was originally published on www.realtor.com
