How to Succeed in Today’s Real Estate Market
Housing affordability is declining. In fact, according to a new report from ATTOM Data Solutions, today’s homes are less affordable than the historical average in 61% of US counties.
But that doesn’t mean you have to give up your dream of buying a home. It just means you need to get creative.
With planning ahead and financing wisely, buying a home can be much more affordable than you thought. Here’s what to do.
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Typical home buying costs
First things first: you need to know what costs to expect when buying a home in order to budget correctly.
Today’s homebuyers must plan to cover:
- An initial fee – 3-20% of the sale price
- Closing costs – 2-5% of the home loan amount
- Deposit – Around 1-3% of the purchase price of the home, paid when you make an offer, and then applied to your down payment.
Let’s say you buy a house worth $ 450,000. If you plan to cut 20 percent, your upfront costs might look like this:
- 20% down payment: $ 90,000
- 2.5% closing costs: $ 9,000
- The total cost of buying a home: USD 99,000
However, even with a spike in home prices, you don’t necessarily need a huge down payment.
Today’s buyers can often only claim 3% less. (Or from scratchif you meet special requirements.)
Let’s say you choose a regular loan of 3% instead of 20%. Now you have to pay for private mortgage insurance (PMI), which increases your monthly mortgage payments. But your initial costs are much lower:
- 3% down payment: $ 13,500
- 2% Closing Cost: $ 8,730
- Total home purchase costs: $ 22,230.
As a home buyer, you have complete control over your spending.
Be sure to research your loan options and mortgage lenders before purchasing. It can save you thousands.
8 Tips to Reduce Costs as a Home Buyer
Fortunately, home prices are not the only factor affecting affordability.
If you are trying to buy a new home and are frustrated with the rising cost of home ownership, try one or more of these strategies to stay within your budget:
1. Find yourself a mortgage
Mortgage rates vary from one mortgage lender to another, sometimes even quite a bit. So what about shopping? This is one of the best ways to get the lowest possible rate.
It is best to compare quotes from several types of lenders – a credit union, a bank, a reputed mortgage company, and an online lender.
You should also consider your home banking institution, as it may offer discounts or perks that you can take advantage of.
Remember, the lower your interest rate, the lower your monthly payment will be. This can help offset rising house prices and help you afford better housing.
2. Discuss the amount of the commission.
You can also negotiate mortgage related fees. This is a great way to keep closing costs down and save money up front.
Start by asking lenders to lower their loan origination fees; using a quote from another lender can help with this.
Check your Loan valuation for other creditor fees, such as an application fee or an underwriting fee. They will have room to maneuver on any of these issues, and they may be willing to negotiate if they really need your business.
You should also go to the second page of the loan estimate and familiarize yourself with the Services You Can Purchase section.
This is a list of the fees you can purchase. Often times, comparative purchases of these services can help you save hundreds more at close.
Other tricks include:
- Paying FHA Loan or USDA Loan Mortgage Advances to Your Mortgage Balance to Save Money on Closing
- Including VA Loan Funding Fee in Loan Amount
- Payment of discount points to reduce your interest expenses over the life of the loan, or
- Avoid discount points to save money in advance (depending on your priorities)
Please note that some costs are non-negotiable.
For example, your lender has no control over appraisal fees, home inspection fees, homeowners association (HOA) fees, or title search / insurance fees. Therefore, budget the full specified amount for these items.
3. Apply for a down payment and assistance in closing the deal.
Even in this competitive real estate market, you don’t need a huge down payment to be successful, despite what real estate agents might say.
Actually about 70% of first-time buyers in the spring of 2021 decreased by less than 20%.
A low down payment can make it difficult to buy a home at a higher price. But helping with the down payment can help bridge the gap in providing your dream home.
Each state has several prepaid assistance programs (DPA) who offer grants and / or loans to make buying a home more affordable. These funds can usually also be used to pay the down payment and close the deal.
Ask your loan officer or realtor about local DPA opportunities in your area. These programs go a long way when you are trying to afford a home in today’s high-value market.
4. Boost your credit
Raising your credit rating is another way to lower your interest rate and make home buying more affordable.
The logic behind this is quite simple: borrowers with higher credit ratings are more likely to repay their loans and are therefore less risky for lenders. As a result, lenders can offer these borrowers lower rates and more affordable loans in general.
Therefore, before you start buying a home, do a quick credit check first.
The best marks go to those with 760 points or higher. So if you are below that threshold, take some time to increase your score before moving on.
You can do this by paying off your debts, paying any overdue or overdue bills, alerting the credit bureau of any errors in your credit report, or even requesting an increase in your line of credit on one of your credit cards.
5. Choose your location carefully.
Housing prices vary significantly from city to city. It all depends on the cost of living, local incomes, property taxes, supply, demand, and a host of other factors.
If you really want to find inexpensive (or just affordable) real estate, consider looking outside of your current location. This could mean moving a few miles – to a more accessible suburb or rural city – or even moving out of state if you’re in a particularly high-priced market.
Fortunately, many employers allow telecommuting to continue even after the pandemic, so this can make it easier to work and move to a more accessible area.
6. Close at the end of the month.
When you close your mortgage, you will pay for what are called “prepaid items,” in addition to your down payment and other closing costs.
They cover mortgage interest, property taxes, and homeowner’s insurance premiums from the day of closing until the day the first mortgage payment is due. And often they can be hundreds or even thousands of dollars.
To avoid prohibitively high prepaid charges, try to schedule a closing date as close to the end of the month as possible.
The prepayment is calculated on a daily basis, so this reduces the number of days you need to cover and can significantly reduce your closing costs.
7. Buy a top retainer.
Homes ready to move in make a big difference. So if you really want to find a bargain home? Consider the retainer-top.
You will need to spend a little time (and money) to get the house in order. But this is often much less expensive than the full cost of moving into a property.
Keep in mind that there are mortgages designed specifically for this type of purchases.
For example, FHA Loan 203k – Supported by the Federal Housing Administration – can help you both buy a house and pay for renovation costs all in one.
There are other options as well. So if you go down this route, talk to your mortgage broker about the best ways to finance your purchase and renovation before moving on.
8. Choose the right moment
Housing costs are seasonal. Prices are usually highest in the spring and summer, and they start to decline as we get closer to autumn and winter. If you can, try deferring your purchase to one of these cheaper options.
According to ATTOMThe best days to buy a home are December 4, January 26, December 6 and December 26. On a monthly basis, December is best and June is the worst.
Will house prices go down in 2021?
During the COVID pandemic, low interest rates helped make home buying more affordable.
But rising house prices and low stocks have reversed the trend of affordability in 2021.
“While ultra-low mortgage rates have certainly helped a lot, prices just skyrocketed too much to maintain their historic level of affordability,” said Todd Theta, ATTOM’s director of products.
Unfortunately, home buyers shouldn’t expect prices to start dropping anytime soon.
Cause? Simple supply and demand.
“Given the low interest rates on mortgages, high demand and the need for additional space, we expect that this [housing] the deficit will remain in the near future. “
The US is in an epic housing shortage that will take builders a long time to fill. And demand – especially from new buyers – continues to outpace supply.
“Given the conditions of low mortgage interest rates, high demand and the need for additional space, we expect this deficit to continue in the near future,” Freddie Mac said in May 2021.
There is some possibility that the current market will cool slightly as rates go up and interest in buying a home is declining. But for now, buyers shouldn’t expect a sharp change in home prices.
As Theta says, “The immediate future of accessibility remains very uncertain, as it has throughout the pandemic.”
This means that if you’re really interested in buying a home this year, it’s time to take affordability into your own hands.
Take accessibility into your own hands
Housing prices can go up, but there are still ways to keep your costs down and afford to buy a home in today’s market.
Are you looking for your dream home? Work to improve your credit history, look for a loan and choose the right moment to buy a home. Home ownership may still be within reach (and budget).