How a mortgage nerd bought a house in a seller’s market



I closed in my house about eight months ago, but it seems to me that it was in another life. Yes, the COVID-19 pandemic makes time feel strangely elastic, but the housing market has also undergone dramatic changes during this period. As a writer specializing in mortgages and home ownership, my job is to keep track of all of this, and what I saw in 2021 was real bananas.

If you’re struggling to find a home you can afford, or trying (and can’t) get an offer accepted, I just want to say: Relax with yourself. That’s not you. It is really difficult.

For those of us not yet digging through the dough, it can take a lot of sacrifice to afford a home: sacrifices like getting an extra job on a Spartan budget, breaking a financial “rule” like borrowing from retirement funds, pooling resources to create an apartment building or multi-generational household, moving from an expensive part of the country to a cheap one, or any combination of the above – plus everything I’ve done.

This is how I bought the house. It wasn’t glamorous, and for the most part, it wasn’t funny, but these are the steps that people determined to become homeowners are taking in this market. And if you can’t follow his example (or just don’t want to), don’t worry: there is no shame in continuing to rent and improve your financial health in the meantime.

I moved to my mom

Is moving in with your parents when you’ve been living on your own for many years the coolest step? Not. Was it smart for me? Yes, and I am immensely grateful for this support; I understand that not all. Working remotely from my childhood bedroom saved me the money I was spending on rent. And hey, because I moved in the summer of 2019, when COVID hit, I was way ahead of the return home curve.

The National Association of Realtors found that between July 2019 and June 2020, roughly 4% of all home buyers said they moved with family or friends to save money on buying a home. This number is about 7% for first-time home buyers.

Kristen and Robert Toth Jr. were not newcomers, but they decided to move in with Robert’s mother shortly after placing their first home in Allentown, Pennsylvania in October 2019. Thus, they would have a breather before buying again. and will be able to increase your initial payment. They ended up staying there for 10 months, watching anxiously as they were quietly sold out for tens of thousands of dollars over the asking price during Pennsylvania’s shutdown last spring.

“There was no way to move from our old house to an apartment, pay the rent, and afford that house,” Kristen says of their 1950s three-bedroom ranch home in the Lehigh Valley suburb. “If we had not lived with a relative, we do not know what we would have received.”

Kristen and Robert Toth Jr. stand in the doorway of their 1950s brick ranch home.

Kristen and Robert Toth Jr. stand in the doorway of their 1950s brick ranch.

Kristen and Robert Toth Jr. closed their Pennsylvania home in October 2020. (Photo courtesy of Kristen Toth)

I made an advance payment of 20%

The same, Kristen, the same – I couldn’t turn my 20% down payment without cutting costs such as rent. Even though I was able to pay off my car and student loans, without a significant reduction in monthly expenses, it would have taken me years to accumulate a down payment.

According to the NAR, in the first quarter of 2021, the average selling price of an existing home was $ 319,200. You will need to skip the latte for almost six years to make a 3% down payment (the minimum down payment for a regular loan) on a home at that price. Assuming a $ 4.50 cup of java, that’s like 2,128 lattes – and that doesn’t even include other upfront costs associated with buying a home, such as closing costs or hiring movers.

One more problem? While making a minimum down payment is easier in your bank account, and with mortgage interest rates at historical lows, allows you to borrow more money at a lower price, this can become a hindrance in a hot market. This is especially true at a time when home prices sometimes exceed valuations and sellers are concerned about the ability of the mortgaged buyer to fill the valuation gap.

“When you rate offers as a seller and you get 3.5% [Federal Housing Administration loan] and 20% conditional, if they are both equal and both are trying to reach the $ 350,000 valuation, naturally you will choose the one with the higher down payment as you know they can bridge that gap, ”explains Mike Ferrante. real estate agent from Century 21 Homestar in Cleveland.

In other words, since the buyer has 20% more cash, the seller might assume that he could use some of that money to fill the valuation gap and simply make a smaller down payment. A valuation gap occurs when the estimated value of a home is less than what you have proposed.

Lenders won’t let you borrow more than the house is worth. Therefore, if you want to continue working despite the low grade, you must be able to make up the difference in cash. (Or the seller must cut the price, which is unlikely to happen in a super-hot market.) Buyers who plan to shell out 20% have more options to redirect some of that cash towards filling the valuation gap while still meeting the minimum cut. payment requests. This may be one of the reasons why in March 2021, 29% of first-time homebuyers paid 20% or more, according to the NAR.

I got a pre-approved mortgage

When I was ready to stop just flipping through property listings and actually looking at properties, I researched lenders and ended up applying for pre-approval of a mortgage half a dozen. Full Disclosure: I don’t know if I would have thought about doing this or even comparing lenders if I hadn’t been writing about mortgages to make a living.

By the time I surveyed the homes in spring 2020, my local real estate market was hot, but sellers were also wary of too many strangers passing through their homes. Many sellers asked buyers for proof of funding before allowing them to inspect homes in person.

A year later, it’s not so much about fears about the coronavirus, but more about the expectation of many offers by sellers at the listing price. “We won’t even take people out if they don’t have prequalification or pre-approval; you won’t be accepted if you don’t have an offer, ”says Re / Max Key Properties agent Brent Landels, based in central Oregon. Landels advises looking at the homes listed under the pre-approval amount because this gives you the opportunity to bid higher.

The author stands at the front door of his yellow house.

The author stands at the front door of his yellow house.

The author closed his home in September 2020. (Photo courtesy of Keith Wood)

I bought a top retainer

I personally walked around more than 20 houses and scrolled through an unknown number of others on the Internet. Finally, in September 2020, I closed a 1740s Cape Cod house in eastern Connecticut that needed a lot of love (you read that right, it’s almost 300 years old). It had a lot of historical charm, a large plot with many mature trees, but if it was ready to move in, I doubt I could afford it.

That low prepayment can come with a price tag, which Monica Lee and her partner, Dan Hart, also found to be true of the retaining top they bought near Washington DC. inexpensive but not livable, ”explains Lee. In August 2020, the couple acquired a home that Lee said had been empty for about 10 years, with FHA Loan 203 (k) coverage of the cost of a home loan, as well as their planned repairs.

The logistics of their loan turned out to be more complicated than anticipated. “I worked in the government, I have permission, I thought I was going to do it with my eyes wide open, and I could continue to work,” says Lee. Bureaucracy and contractor security issues have pushed the couple’s schedule time and again, but Lee says, “You really learn a lot. You feel like you’ve achieved something. I will feel that we love home. “

Be patient with yourself and the market

Buying a home from the seller’s market definitely meant even more work (and money) than I expected. In the end, after closing, I stayed with my mother for several months while I brought the house into a livable condition. But I will love my home too.

If you can hold out there, make the sacrifices this market demands, and end up having a place to call your own, congratulations. And if you decide to give up home search now, I can’t say I blame you.

Yes, you will have to rent for longer, but you will also have more time to save on the down payment and possibly adjust your credit rating, which will help you get the best interest rate. The market may even become a little more customer-friendly. You still have a lot of time to become a homeowner – and if this is not the right time for you, no big deal.

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Keith Wood writes for NerdWallet. Email:

The article “How a Mortgage Nerd Bought a Home on a Seller’s Market” first appeared on NerdWallet.


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