Sweat the big stuff.
Buying your first home is scary. We get it. All those concerns you have about money are quite legitimate, and the mortgage process can be confusing. On top of that, you want to make sure the house fits you.
But some of the things that first-time home buyers worry about really don’t matter. Here are five issues that shouldn’t factor into choosing a home:
Your dining room table or couch doesn’t fit.
More than once, we’ve seen an HGTV house hunter reject an otherwise perfect home because a piece of their existing furniture wouldn’t fit. And we involuntarily scream “SERIOUSLY???” at our TVs in frustration.
Time for a little reality check: If your dining room table has some special significance ― say, it came over on the Mayflower with your ancestors ― OK, fine, keep it. But if it’s something you bought at Ikea and spent a weekend of hard labor assembling, don’t let it be a factor in whether to buy a house.
Furniture that doesn’t work in your new home can be sold. It can be given to the charity thrift store and, at least for now, will produce a nice tax deduction.
Or if you really like your dining room table, you could store it. While this is your first house, it likely won’t be your last. A 2013 National Association of Home Builders study found that buyers of single-family homes typically stay in the home about 13 years. That means if the table doesn’t fit in this house, maybe it will in the next one.
The walls are painted hideous hues.
There is no accounting for taste. But the good news is that paint is cheap and will totally erase the offending wall colors ― although it might take three coats.
First-time prospective buyers are often guilty of seeing things only as they are, instead of seeing what they could be. Force your eye to view the potential, not the purple walls.
In general, look past the things that can be easily changed and focus on what can’t be so easily undone. A north-facing house will always be dark. A house on a busy intersection will always be noisy. The next-door neighbor who uses his front yard as a car repair shop isn’t likely to stop earning a living because you asked him to nicely.
The top three things you may wish you could change but can’t are noise, view and natural light ― although skylights help.
The decor reminds you of Grandma’s place and not in a good way.
Without question, some homes are dated. But remember, when the seller leaves, he will take his stuff with him. Don’t worry about the well-worn recliners and dusty drapes, and instead get some quotes on how much it will cost to remodel the kitchen and the bathrooms circa 1974. Those are the rooms where updating will cost you.
Also, keep in mind that one person’s “dated” is another’s “vintage.” At some point, that kitchen linoleum that is causing your eyes to bleed may just be back in style. But yes, let us all pray that orange shag carpet will never make a comeback.
You’ve met the kitchen of your dreams.
Cool your jets! Even Remodeling Magazine thinks you’re behaving impulsively.
Want to know the only home improvement project that more than pays for itself, according to Remodeling’s annual study? Putting loose-fill insulation in the attic. It brought a 107.7 percent return on investment ― despite sounding about as exciting as watching grass grow. Siding replacement recouped 92.8 percent of its cost, according to the study. Replacing roofs and windows was also high on the list, returning 80 percent or more at resale.
So what does that tell you about what’s important in evaluating a house?
Infrastructure matters. New roofs, new plumbing and new electrical systems ―whether the former owner put them or they’re your first project ― will likely serve you better than a recently remodeled kitchen.
Don’t fall for eye candy, in either relationships or houses.
You don’t have children.
You don’t have and/or don’t want children. Fair enough, but that doesn’t mean the quality of the local schools shouldn’t matter to you at all.
A house is more than just a place to live. It’s also an investment, probably the largest one you’ve made to date. It’s smart to think not only of your current situation, but also about what prospective buyers will be looking for when you go to sell this house down the road ― and that means schools. In a 2013 Realtor.com survey of nearly 1,000 prospective home buyers, 91 percent said that the quality of the schools was important in their search.
One out of 5 buyers said they would give up that extra bedroom or a garage to buy in a district with better schools, and 1 out of 3 would purchase a smaller home to wind up in the right district.
Buyers also put their money where their mouths are. One out of 5 said they would pay up to 10 percent above their budget for the right school. One out of 10 would double that to 20 percent.
So even if you won’t be sending kids there, a good local school system could be money in your budget ― for that next home.
Here are six hurdles for first-time home buyers that can be overcome.
The obstacles to buying a first house may appear insurmountable: Home prices have risen, mortgage interest rates are poised to rise, and by most people’s definition we’re in a market that favors sellers.
But for many who think they can’t afford the American dream of owning your own home, there’s some good news: You probably can ― and in a place you’d actually want to live.
Here are six problems that, despite what you’ve heard, don’t have to stand in the way of home ownership.
Problem 1: You don’t have the 20 percent down payment.
Maybe you’re still paying off student loans or living paycheck to paycheck. Your savings account is simply not that full.
The gold standard in buying a house is 20 percent down ― that is, you pay 20 percent of the purchase price upfront. But that doesn’t mean you can’t get a mortgage with a smaller down payment. You can very often pony up much less ― even as little as 3 percent.
And you won’t be alone. According to the National Association of Realtors, 81 percent of Americans purchase their first home with less than 20 percent down.
Paying less upfront has its disadvantages: You’ll need to take out a larger mortgage, obviously. When you put up less than 20 percent, the mortgage lender can also require you to take out private mortgage insurance. But the difference between 20 percent and 3 percent on a house selling for $300,000 is the difference between $60,000 and $9,000. Sounds more doable already, doesn’t it?
What if you’re still coming up short? The solution for many young adults is to tap the Bank of Mom and Dad for a gift.
Your generous donors have to pay gift tax on any sum above the federal exemption limit for that year. The limit for 2017 is $14,000 from one person to another. That means Mom can gift you and your partner $14,000 each and Dad can do the same, which amounts to $56,000. Grandma and Grandpa could also chip in.
If you’re putting down 20 percent or more on a mortgage that’s backed by Fannie Mae or Freddie Mac, the whole down payment can come from a gift. But if your down payment is less than 20 percent, some of that money has to be your own.
Another option that is gaining in popularity, according to a recent study by ATTOM Data Solutions, is to ask Mom and Dad or another relative to co-sign the mortgage with you. Assuming their credit score is good and they have income and assets that boost your mortgageability, you could obtain a loan with less money upfront. The risk here is that if you miss a mortgage payment, their credit will be affected as well as yours ― and if you stop paying entirely, the bank will come after them.
The report found that 22.8 percent of all purchase loan originations on single family homes in the second quarter of 2017 involved co-borrowers listed on the mortgage or deed of trust, an increase from 20.5 percent during the same period in 2016. Among 42 cities with at least 1,500 such loan originations, those with the highest share of co-borrowers were San Jose, California (50.9 percent), Miami (45.2 percent), Seattle (39.1 percent), Los Angeles (31.1 percent), San Diego (29.4 percent) and Portland, Oregon (28.8 percent).
But since not everyone has parents who can or want to fork over financial help, here are some other places to look for down payment money:
Pull from your 401(k) or IRA assets.
You may be able to borrow up to the lesser of $50,000 or 50 percent of your 401(k) plan balance, and first-time home buyers may qualify to take up to $10,000 from an IRA without paying early withdrawal penalties. Be advised, though, that not all plans permit borrowing, and tapping into these resources so soon is likely to slow down your accumulation of retirement savings. Also, you will have to repay your 401(k) ― and some IRAs. Beware that some 401(k) plans require immediate repayment if you leave your current employer.
Skip the big wedding.
Although most Americans spend less than $10,000 on their wedding, some people are dropping $20,000, $30,000 and much, much more. The money you don’t spend on one day of celebration could make a substantial dent in your home down payment. A spinoff idea is to create a “wedding registry” that suggests money to buy a house instead of dishware that you already have. For instance, HoneyFund, which calls for honeymoon donations, can also be used to collect money for a down payment.
Play the first-time home-buyer card.
There are federal, state and local programs that help would-be homebuyers qualify for loans or offer them grants toward their down payments. Fannie Mae and Freddie Mac have options that can ease the way for borrowers with a wide range of incomes. Even the U.S. Department of Agriculture offers a helping hand to some first-time homebuyers, just in case the rural life appeals.
Problem 2: You have bad credit.
Bad credit may be the biggest obstacle of all to buying a house. A tarnished credit report will limit your choices to loans with higher interest rates or no loan at all.
The best thing to do is come clean about your bad choices and be prepared to demonstrate the new frugal and fiscally responsible you. Pay your bills and pay them on time. Talk to a mortgage broker and ask for suggestions on how to improve your credit score.
In the meantime, here’s some advice for every house-hunter:
Don’t incur any new debt while you are house-hunting.
Defer buying a car until after you buy your house. The mortgage lender will be assessing your income-to-debt ratio.
Don’t even apply for any new credit cards.
Each time you apply for a financial instrument ― a credit card, a car loan, a new refrigerator on layaway ― it is considered a “hard pull” on your credit. As a result, your credit score will drop a few points, and that will stay on your record for two years. Yes ― just for applying!
Know what your credit score is.
Shockingly, many people start house-hunting without first finding out this all-important number. According to the National Foundation for Credit Counseling, 42 percent of Americans haven’t checked their credit score in at least the past 12 months. What you specifically want to know is your FICO credit score since it’s what lenders look at most often to assess creditworthiness.
As of April 2016, the average FICO score nationwide was 699 on a scale of 300 to 850. Generally, a score below 550 is considered poor. The two magical numbers are 620 for Federal Housing Administration-insured loans and 720 for conventional loans with primary mortgage insurance. If your FICO score falls below the relevant number, you may not qualify for those mortgages. For conventional loans without mortgage insurance, your FICO can dip as low as 620, but the interest rates and affiliated costs on those loans will be prohibitive.
Problem 3: You fell in love with a house far outside your price range.
Well, first of all, congratulations on actually knowing your price range. Now break up with that dreamy mansion and move on. Shopping for champagne on a beer budget never ends happily.
A house will likely be the largest single purchase of your life. Think of it as an investment that you sleep in or a retirement savings account with a kitchen. You aren’t just house-shopping for current you, but for future you. And someday you’ll want to sell this investment.
So stop thinking in terms of whether your couch will work in the space and think more about the big picture. Make a list of the features you simply must have, the features that would be great to have and the features that you really don’t care about.
Suggestion: Add “good schools” to the must-have list because even if you don’t have children and don’t plan on ever having them, houses in good school districts appreciate faster. A National Bureau of Economic Research study found that for every $1 increase in per pupil spending, local home values increased by $20.
To determine that home price range (if you haven’t), figure out how much you can really afford to spend on housing each month. A standard rule for lenders is that your monthly housing expenses (PITI for principal, interest, taxes and insurance) should not be more than 28 percent of your income before taxes. Some banks will stretch this “housing ratio,” or “front-end ratio,” to 33 percent. So if you earn $5,000 a month, the maximum PITI payment the lender thinks you can handle is about $1,650.
Banks are also looking at a “back-end ratio.” Add up your PITI payment with all other monthly revolving debt payments ― on credit cards, car loans, any other loans you carry. That sum should be no higher than 41 percent to 50 percent of your gross monthly income, depending on the type of loan and lender.
While your dream house may cost too much for now, you don’t necessarily want to be below these ratios. The assumption is that your mortgage payment will stay the same through the years while your income will likely increase with promotions and raises. It may be a squeeze to make your mortgage payments for the first year or so, but the effort should get easier.
Problem 4: You fear you’ll mess up your life with a bad loan.
For decades, the 30-year mortgage with a fixed interest rate was a kind of one-size-fits-all. At the end of 30 years, you would own the house outright, hold a mortgage-burning party and then live “mortgage-free” in retirement.
But many people no longer reside at the same address for three decades. In 2016, the average length of time to own one particular house was 10 years, according to the National Association of Realtors’ “Profile of Home buyers and Sellers.” Ten years before that, homeowners tended to move every six to seven years. So there are many types of mortgages on the market designed for how we live now.
Some loans begin with low interest rates that are then adjusted upward by a certain percentage every year or so. The popularity of these adjustable rate mortgages are blamed for helping trigger the foreclosure crisis in the mid-2000s. Banks were accused of not adequately vetting potential mortgagees who found themselves with escalating payments that they couldn’t afford.
That said, adjustable rate loans make sense for some people. The low initial rate is more affordable at the beginning of the loan, when your income may also be lower. If all goes according to plan, you’ll refinance or sell the property before the loan resets beyond your ability to afford it.
Talk through the various options with a mortgage broker, preferably one who works with more than one lender. Make sure any loan you accept doesn’t impose a penalty if you pay it off early. If interest rates drop, you want the ability to refinance ― essentially, to get a new mortgage at a lower rate.
But don’t despair at the complexity. People like you are owning homes and paying down their mortgages every day. The overall mortgage delinquency rate dropped in the second quarter of 2017 to its lowest level since the second quarter of 2000, according to a national survey released by the Mortgage Bankers Association.
Problem 5: You don’t really know where to begin.
Some first-time buyers think going to every open house that offers free cookies is a smart way to start. Even if the cookies are great, you’re wasting time.
Begin by educating yourself. Since the home-buying process varies from state to state, learn how it works in the state where you want to buy. Fannie Mae and Freddie Mac both offer classes that can help guide you through the process.
Here are some basic things that every buyer should understand:
Real estate agents work on commission.
As a buyer, you don’t need to pay an upfront fee for an agent to drive you around and look at houses. The commission rates for both the listing and selling agents are written into the listing contract that the seller signed and are factored into the asking price. The typical commission is 6 percent, split equally. For especially expensive properties, sometimes agents agree to take less.
All this means that real estate agents don’t get paid unless the deal closes. They work to close deals. No deal, no pay day. Period. Agents may be very charming people, but they don’t work for you. They work for themselves.
It’s not usually a good idea to try to get around this unpleasant reality by hiring an inexperienced friend or relative who just obtained a real estate license. Work with an agent who specializes in the neighborhood you want to buy in. Drive around and see whose signs are on the most lawns.
Homes can be bought without bank or third-party mortgages.
Some sellers are willing to hold the mortgage. Instead of getting a loan from a bank, the buyer signs a contract to make payments directly to the seller. This is perfect for buyers who cannot obtain a conventional loan because of credit or income issues. It also saves the buyer a big chunk on closing costs. There are no points on the mortgage (essentially, fees paid to the lender). There’s less paperwork. Should the buyer default on the loan, the seller keeps the down payment and can foreclose the same as a bank would.
A house that’s been on the market a long time doesn’t necessarily have serious flaws.
Generally speaking, homes that don’t sell within the first few weeks are priced too high. The seller may have unrealistic expectations about the value of his home. There is no harm in making a low offer, and the real estate agent must, by law, present it to the seller. The seller might not like your offer, but if he has a smart agent, he will use your bid as an opening volley in negotiations.
Every house has some flaws. You have to decide whether they’re fatal.
Certain problems can’t be fixed but may be managed. If the house sits on a busy corner, there will be traffic noise. If the house faces north, it’s likely darker inside. Are these flaws you can live with? Would a row of dense shrubbery cut down the street sounds? Could skylights and some tree-trimming help with the sunlight situation?
Other problems may be worth embracing. It’s good financial advice to buy the dumpiest house on the best street. A house that is move-in ready will inevitably cost more. Turnkey homes, as they are called, lure you in by making it easy for you to envision living there. But if you want a bargain, bring a contractor with you to the dumpier house and let her help you “see” the potential behind the peeling paint and weed-filled yard.
A final word on open houses: They’re basically training and recruiting platforms for new agents. Free cookies aside, listings rarely sell because of an open house. Most of the people who walk through are curiosity seekers often looking at properties above their price range.
Only 9 percent of buyers found the home they purchased at an open house in 2014, according to the National Association of Realtors. Yet 44 percent of buyers that year included open houses in their search.
Problem 6: You made an offer and now are seriously terrified.
Home-buying is a negotiation, with price being the big item on the table. But it’s not the only item. Every offer you make should have at least these two contingencies:
1. You will have the chance to get the property professionally inspected. If the inspector turns up problems that would cost too much for you to fix, you can renegotiate the purchase price ― or walk away.
2. Your offer is based on your ability to find favorable lending terms. If you can’t get the money, you’re not legally obligated to buy the house.
Depending on where the property is and what you’re planning for it, other contingencies might include termite inspection and a contractor’s assessment of certain remodeling costs.
When you and the seller have a contract that you both accept, you go into a process known as escrow. A third-party escrow officer will make sure that all the t’s are crossed and the i’s dotted on the paperwork and will handle the money payouts when it comes time to close the deal.
Things can still go wrong in escrow. An inspection can turn up a roof that needs to be replaced or a garage with a mold problem. The buyer may not be able to secure financing by the deadline. Or the bank’s appraiser may deem the house not worth what the buyer is willing to pay for it.
Not every escrow ends with the sale of a property. Nationally, 3.9 percent of home sales failed in 2016, up from 2.1 percent in 2015. First-time home buyers are more likely to have a deal fall apart, according to the National Association of Realtors, because they’re unfamiliar with the process ― and yes, they may get cold feet and look for a way out.
Breathe deeply. We’re still waiting to meet the person who slept well the night before escrow closed.
Close friends and relatives should generally be avoided.
Being a real estate agent involves more than just knowing the combination to the lock box. It means having sales and marketing know-how, the diplomatic skills to close a deal and the ability to represent a client’s interests above all else.
So how do you pick the best real estate agent for you? Here are a few things that agents and real estate experts say must be considered:
Real estate is local ― hyper-local, actually. Your agent should be, too.
You want someone who has knowledge of the neighborhood, who understands the housing market there, knows the inventory, is familiar with the schools, local issues, traffic concerns and much, much more, said Tim Freund, an agent with Dilbeck Estates in Thousand Oaks, California.
Your college roommate who sells homes in a town 30 miles away should probably not be your agent ― even if she is the biggest producer in her office. You want someone who knows the specific neighborhood you want to buy in.
So how do you find these agents?
“Pay attention to who sells in your neighborhood,” says Deidre Woollard, a real estate publicist with Lion & Orb, which is headquartered in Los Angeles. That’s right: Drive or walk around and see who has the most signs up. All your neighbors can’t be wrong. And avail yourself of the vast pool of information available online, she told HuffPost.
“Zillow, Homesnap, Realtor.com and others let you see who is most active in your area,” she said. “You don’t always need the top agent but you do need someone who has sold recently.”
Be sure to do a little self-examination as well. You want to be compatible with whichever agent you pick. If you are someone who wants answers ASAP, consider hiring someone who has a support team, Woollard said.
Getting referrals are a big measure of how successful an agent is. “Ask friends who live in your targeted neighborhood for the top local Realtor,” said Maxi Lilley of Red Oak Realty in Oakland, California.
Specifically ask who they would use today. According to the National Association of Realtors, 64 percent of sellers who used an agent found them through a referral by friends or family. And among that group, 70 percent said they would definitely use that agent again.
Your friend or relative may not be the best agent for the job.
Think of it like this: A real estate transaction is likely going to be the biggest money deal you make in your lifetime, and there really is no room for mistakes. It is not the time to toss a bone to your friend or relative who just got a real estate license and lives 20 miles away.
Your newly licensed sister-in-law may be a lovely person, and not giving her your business (and a shot at a hefty commission) is sure to add stress to the Thanksgiving dinner. But in many cases, listing a house for sale or submitting an offer through a relative or close friend isn’t such a hot idea ― especially if that relative or friend doesn’t have much experience or first-hand knowledge of the neighborhood you want to buy or sell in.
Freund has written blogs about the sticky situation of having friends and relatives in the business. He told HuffPost that letting a relative know you are picking another agent can be a tough conversation to have. He suggests that to soften the blow, you spell out your concerns and propose a compromise solution. If inexperience is the concern, ask them if there is a more experienced agent in their office (assuming it’s local) with whom they can co-list your house. And if they aren’t local, ask them to help you find a local agent and make a referral; referring agents are paid a fee when the house sells.
Blood and friendship may run deep, but at the end of the day, you have to hire the most qualified person to represent you because if you don’t, there’s plenty that could go wrong, Freund said.
“Real estate often brings out the worst in people. It’s very stressful,” he said. “It’s a big and expensive life decision. Sometimes you just need the assistance of someone who doesn’t have a personal relationship with you.”
For one thing, if the home-buying process isn’t going well, you need to be able to fire that person, Freund said. And as hard as it may be to tell your friends and relatives you can’t hire them right off the bat, it pales in comparison to when you need to fire them.
The best listing agent is not the one who tells you what you want to hear.
Everyone selling a home hopes it will fetch top dollar, and it’s widely recommended that potential sellers invite at least three agents over before picking one. As human nature would have it, we tend to like the guy who suggests the highest listing price.
That is often a foolish thing to do, Woollard said.
“You want the agent who backs up the price with local data and doesn’t just say what you want to hear,” she said.
An agent who plays along with your pricing fantasy likely isn’t going to produce a sale. More likely, he is pricing it high to curry favor and will come back to you in a few weeks, asking for a price reduction.
There are many strategies to marketing a house for sale. Some agents think pricing low and letting the marketplace drive up the price in a bidding war is the way to go. Others think pricing high and testing the waters will get you more comfortable with the idea that your house isn’t really worth as much as you thought; that’s the agent who tells you what you want to hear.
Go with the agent who actually closes deals.
There are career real estate agents and there are those whom career real estate agents call “hobbyists,” said Freund. Some people get a real estate license just to represent themselves in a transaction. Others do it a few hours a day while their kids are in school. Still others treat real estate as a second job to supplement their “real” occupation.
While some part-time agents do regularly close deals, Alex Newell, a loan officer with GMH Mortgage Services in Nashua, New Hampshire, advises asking potential agents how many transactions they closed in the previous 12 months. “Make sure it’s at least one a month,” Newell said, which is what the National Association of Realtors says is on par with the national average.
Working fewer than 20 hours a week in real estate sales delivers a median gross income of $8,550 a year, according to the 2016 member profile of the National Association of Realtors. In comparison, working 60 hours or more a week produces a median gross income of $93,400, the NAR report shows. The more an agent works, the more transactions they close and the more experience they get.
“This is hard work,” Freund said, reiterating Newell’s advice to ask agents how many deals they’ve closed. “If you are inexperienced, it’s hard to answer that question.”
Virtual Real Estate Transaction Coordinator Company
Want to buy or sell a home in 2018? Here’s what agents say you should do to get ready
Tips for Sellers
1. Declutter and Organize
“After the holidays is a great time to clear out all the things you no longer need,” says Charleston agent Tammy Trenholm. “Decide what you want to keep and then pack and store anything you don’t immediately need at your new place. Be sure to organize your closets and pantries so they are tidy. This will help showcase your storage space.”
2. Paint Inside and Out
“First impressions mean everything. Make sure interior rooms are freshly painted with a neutral color,” said Trenholm. “The exterior should be power-washed and painted if needed; often the front door can use a fresh coat of paint or stain, too.”
3. Make Updates to Increase Your Home’s Value
You should talk to your agent about small changes you can make that might have a big impact on buyers, says Washington D.C. agent Chelsea Traylor. Updates like a kitchen backsplash or new hardware throughout the house can leave a lasting impression.
“The more value a buyer sees in a property, the greater the chances that one or more buyers will make an offer at your list price, if not more,” says Traylor.
4. Talk to and Collaborate With Your Neighbors
“If you have nearby neighbors, buyers will likely be curious about how well your neighbors keep up their homes,” says Traylor. “If you share a hallway or lawn, let your neighbors know of your plans to sell and kindly ask them to tidy up. A speedy and profitable sale for you only means great things for your neighbors when they decide to sell.”
5. Figure Out the Right Time to Sell
Sellers tend to think they need to wait until spring in order to sell quickly, but in many markets that’s not the case, says Phoenix agent Raegan Kraft.
“Homes sell well year round in the Phoenix area; there are more sales in the spring and summer months. But because there are more buyers at that time, there are also more sellers and more competition,” she said. “Ultimately, sellers should sell at the time that makes the most sense for them. The beginning of 2018 is a great time to list, as buyers left over from 2017 have exhausted the limited inventory, and new buyers will begin looking as well.”
6. Price Your Home to Sell
“Look at key market indicators such as recent sales, pricing trends and inventory to guide you to the best listing price,” says Traylor. “Be cautious of overpricing and underpricing. Overpricing could scare off potential buyers who may think a seller isn’t being realistic, while underpricing means that you as a seller could leave money on the table. Agents use a tech-powered comparative market analysis tool to help guide sellers to the right price. Work with your agent to develop the right pricing strategy so that your list price is either at or slightly below market value, thereby creating as much interest as possible from the buying community.”
Tips for Buyers
1. Limit Credit Card Spending and New Purchases
“Commit to refining your purchasing habits. Reducing credit card use, not opening new credit cards, and avoiding large purchases can all help improve your credit score,” says Miami agent Jessica Johnson. “Sometimes a difference of a few points can increase your purchase price approval or get you a better rate. What better time to implement new habits than a new year!”
2. Find Out How the New Tax Bill Affects You
“The 2017 tax bill that has been signed into law changes several financial considerations when buying a home, and the conforming loan limit has also been increased,” says Chicago agent Daniel Close. “There are several changes you will want to acquaint yourself with that buyers in 2017 did not have to consider.”
3. Maximize Savings
“Review your finances and set a monthly budget to start saving up for a down payment, if you haven’t already,” says San Francisco agent Miriam Westberg. “If you already have a savings account, think about other ways you can add to it. Can you cut monthly expenses somewhere else to offset more savings? Keep upcoming tax payments and/or refunds in mind too!”
4. Get Pre-approved
Many sellers won’t even entertain an offer without a pre-approval letter, says Redfin agent Danielle Parent in Cleveland. So it’s best to find a local lender who has a reputation for closing on time and get pre-approved before you submit an offer.
“The market has been so competitive that I have had sellers request a pre-approval from a local bank. In multiple offer situations, if you have a pre-approval for an FHA loan with 3.5 percent down, you should see if you can qualify for a conventional loan with 5 percent down, as this will make your offer more competitive.”
5. Set Up a Saved Search
“Once you have a general idea of your borrowing ability, jump onto app and start setting up saved searches; Will send you a smartphone notification or email when a home that meets your criteria is listed,” said Seattle agent Allie Howard.
“You can set a price cap and filter by location. If you want your child to go to a specific school, you can filter by that school etc. One thing to keep in mind, however, is that in a strong seller’s market like we have in Seattle, many of the homes will end up selling above list price. So it can be a good exercise to set your search for approximately 10 percent below your price cap to allow some room to escalate up in price if a home you like ends up receiving multiple offers.”
6. Start Exploring in Person and Online
It’s good to check out different neighborhoods to get an idea of what you’re looking for, says Westberg. Then, look up the neighborhoods you like on Redfin.com and review sold homes to get a sense of sale prices in that area. Once you’re ready, you can start looking at homes.
“We saw a very busy, hot market starting in early 2017, so buyers should plan to hit the ground running,” says Close. “Do your research before February and go see some homes to get the process started. Well-prepared and experienced buyers will have the best chance at success.”
Parent says you should request a tour as soon as you see a home you like hit the market. “The Redfin team can accommodate same-day tours and if it turns out to be ‘the one’, we will be able to place a bid quickly,” she said.
7. Be Creative With Your Search
“While everyone else is looking for the three-bed, two-bath home in the ‘established’ neighborhoods, I believe you can get a better deal on homes that have room to build an extra bedroom or bathroom,” said agent Gus Sanchez in Portland. “Look for the up-and-coming neighborhoods in your area that are expected to improve and appreciate over the next few years. Renovation financing for ‘fix up’ buyers and creative financing for contingent buyers will also be key in obtaining your goals!”
8. Be Flexible With Sellers
You can make yourself more competitive by accommodating the seller’s needs, says Parent. “I will often ask the listing agent what day the seller prefers to close as this can be a consideration when looking over multiple offers. I have won offers because of my buyer’s willingness to close when the seller needs to. The more accommodating you can make your offer, the more appealing it will be to the seller.”
9. Be Patient
“Keep at it!” says Parent. “It will take time to find your perfect home but don’t get discouraged. If you lose out on a home or two, it wasn’t meant to be. In most cases, my buyers end up with a better home than the ones they lost bids on. Be patient. It will happen!”
Virtual Real Estate Transaction Coordinator
Figuring out when to plunge into the real estate market can be quite intimidating—especially when prices are high, choices are limited, and history urges restraint.
"We’ve seen two or three years of what could be considered unsustainable levels of price appreciation, as well as an inventory shortage that resulted in a record-low number of homes for sale across the country," says Javier Vivas, director of economic research. "When you factor those together, you have a market that has to either explode or see some relief."
Comforting, right? Well, take heart: Experts agree that relief is indeed on the horizon.
New predictions for 2018 forecast more moderate gains in home prices and rising inventory levels, while low unemployment and record levels of consumer confidence mean more buyers are feeling good about their finances.
A lot depends on where you live (and how much you plan to finance), but these factors combined could mean 2018 will be your year to take the buying plunge.
1. Rates are going up
After years of record-low interest rates (hello, 3%!), the Fed is finally making some noticeable increases: The rate for a 30-year fixed mortgage broke the 4% mark last year. And with economic growth continuing to carry momentum, Vivas predicts we'll see at least two to four more rate increases throughout 2018. Rates are anticipated to hit 5% by the end of the year.
"The big story there is that those increases will further constrict affordability," Vivas says. "The more buyers wait, the more expensive it will get to buy—not just because of home prices, but because of inflationary pressure."
In other words, if you want in on the American dream, now might be the time.
2. Prices are climbing, but not crazily fast
Home prices have soared over the past few years, pricing otherwise well-positioned buyers out of high-cost areas and leading some experts to cry "bubble". But in 2018, price increases are expected to moderate.
Vivas forecasts a home price increase of 3.2% year over year, after finishing 2017 with a 5.5% year-over-year increase. Existing-home sale prices are predicted to increase 2.5% year over year.
Of course, it all depends on where you live. While red-hot markets such as San Francisco are predicted to finally lose some steam, sales numbers and home prices are poised to climb in Southern states such as Texas and Florida, where economic momentum continues chugging along and new construction is happening in the right price points.
So what does that mean? Basically, home prices will still increase, but not at the same pace as they have over the past few years.
3. Inventory levels will begin to increase
An inventory shortage has plagued the U.S. housing market since 2015, forcing some buyers to settle (a tiny house with linoleum floors for $1 million, anyone?) and keeping others out of the buying game entirely. But by fall 2018, the tides will begin to turn, with markets such as Boston; Detroit; and Nashville, TN, recovering first.
The majority of inventory growth will happen in the middle- to upper-tier price point, in the ranges of $350,000 and $750,000 and above $750,000, Vivas predicts.
New home construction is also expected to expand. But that will happen slowly, thanks to a constricted labor market, limitations on the amount of lots and land that's available, tight bank financing for building loans, and a run-up in building material prices, says National Association of Home Builders chief economist Robert Dietz.
"It's been a slow climb back from the recession, and now we're confronting all of these limiting factors and supply-side constraints," Dietz says.
It's particularly tough, he says, for builders to break ground at the entry level for first-time buyers, particularity in high-cost coastal markets such as California. That means it will take longer for those inventory levels to recover.
But there's a bright spot: Builder confidence is at its highest level since 1999, according to the NAHB. And that means hope is on the horizon.
"As we head into 2019 and beyond, we expect to see the inventory increases take hold and provide relief for first-timers and drive sales growth," Vivas says.
The wildcard: Taxes and politics
When the Republican tax plan was introduced, the proposed elimination of the mortgage interest deduction was all anyone could talk about: While the new limitations on the deduction will affect only 2.5% of all existing mortgages in the U.S., it will have a disproportionate effect on Western markets, where 20% to 30% of mortgages are above the new threshold, according to Vivas.
Across the board, experts agree that the new tax plan decreases incentives for homeownership and reduces the tax benefits of owning a home—particularly in highly taxed, expensive markets such as California, Illinois, New York, and New Jersey. But on the flip side, that means that if fewer folks are motivated to buy, then there’s less competition for those who want in the game. Plus, some taxpayers—including renters—will see a tax cut. That increase in buyers' disposable income could spur demand from folks who are looking to build equity as a homeowner, rather than flushing away their savings in rent.
"Buying remains the more attractive option in the long term—that remains the American dream, and it’s true in many markets where renting has become really the shortsighted option," Vivas says. "As people get more savings in their pocket, buying becomes the better option."
Virtual Real Estate Transaction Coordinator