Super Bowl weekend is the unofficial kick-off to the peak spring home buying and selling season, according to many real estate agents.
Are you ready?
If you’re feeling unsure and confused, you’re not alone. The US housing market is giving off mixed signals: Home prices are falling, but they’re also rising. Mortgage rates have been ticking down, yet remain volatile. Sales have fallen for 11 straight months even as the US job market is the strongest in 50 years.
The cost to finance a home doubled in 2022. But there has been some relief for prospective homebuyers, as average rates for a fixed-rate mortgage have fallen from last year’s peak of over 7%.
Now is a window of opportunity, said Jim Flanagan, a broker at Coldwell Banker Flanagan Realty in Toms River, New Jersey.
“Because there are fewer buyers, they have more time, they don’t have to make a decision in 24 hours,” he said. “They can look at two or three homes, instead of just one, and feel like they have to make a decision 15 minutes later, the way it was the past couple of years.”
Even in markets where a well-priced house attracts several bids, the frenzy is muted, said Flanagan.
“With multiple offers on an entry-level home, we’re not looking at people paying $50,000 or $100,000 over the list price,” he said. “Maybe $5,000 or $10,000 now.”
Here’s how to be ready to make a move when the right home comes along.
Get pre-approved for a loan
Inventory is stubbornly low in many housing markets because so many current homeowners are reluctant to trade in the ultra-low mortgage rate they got over the past couple of years. With the supply of homes to buy expected to follow seasonal trends and grow steadily heading into the spring, now is the time to be sure you are not only pre-qualified for a loan, but also pre-approved.
Both processes are helpful when buying, but a pre-approval carries more weight. Being pre-qualified for a mortgage is based on financial information provided by the buyer and gives buyers a rough estimate of what they might be able to afford.
But the pre-approval process is based on data verified by a lender, including a credit check. Once you’re pre-approved you get a conditional offer for an exact loan amount from a lender.
“If you tell me you’re pre-approved for a loan, I know that an underwriter scored it,” said Flanagan.
This is important, he said, because the newest listings get the most attention and at certain price points there could be a lot of competition for a particular home.
“Buyers need to be ready to go even though there is a little more breathing room now,” Flanagan said. “For those that are motivated and ready, willing, and able ready to buy, they will want to have a pre-approval so they can act fast.”
One important thing to remember about getting pre-approved is that because it involves lenders looking at more detailed information about you, it will count as what the credit industry calls a “hard inquiry” and will adversely impact your credit score for a short time.
Take advantage of less competition
The number of buyers in the market is expected to increase as the spring goes on and agents advise against waiting on mortgage rates.
If you are ready and able to buy a home, the day-to-day movements of rates should matter less than finding a home you can afford. Agents like to remind buyers it’s best to “marry the house, date the rate.” They argue the priority should be on buying the most house you can pay for comfortably regardless of the financing terms, which can be changed down the line.
“Don’t wait on rates,” said Flanagan. “You might be waiting for rates to fall. So is everyone else. What will happen when rates go down? Demand increases and prices will increase.”
Already, over the past few months, mortgage applications have risen when rates have dipped down.
“The monthly payment may not be what you like, but it isn’t permanent,” he said. “Based on what we’re seeing, rates will go down eventually. They won’t go down to 3% or even 4% in the near future. But if you find something you’re qualified to buy, get in and refinance when rates go down.”
It is important to remember, if mortgage rates don’t go down as much as you’d like after you buy, you could be stuck with it longer than you’d like. In addition, refinancing can be costly, at between 2% and 5% of the loan’s principal amount. Unexpected events may prevent you from refinancing, like losing your job or losing value in your home.
Check for homebuyer assistance programs
Coming up with the money for a down payment is one of the biggest hurdles for new homebuyers.
Making a 20% down payment on a home is standard, and paying less usually requires private mortgage insurance. But many people put down less. Last year 97% of first-time home buyers financed their purchase with a typical down payment of 6%, according to the National Association of Realtors. The typical down payment for a repeat buyer last year was 17%.
Special loan programs that provide down payment assistance are available for eligible borrowers, and they can be more affordable than conventional or Federal Housing Administration (FHA) loans. And the time to apply for them is now, said Jennifer Branchini, a Compass agent in Pleasanton, California, and president of the California Association of Realtors.
But there are also programs for people working in certain fields like education, law enforcement, health care or other public service employees. Some are for people who are buying in a particular neighborhood. Many target low- and moderate-income families buying their first home, although “first home” may mean a buyer hasn’t owned a home in a certain number of years.
When Branchini is working with a new buyer who may be eligible, she suggests they look at the more than 400 buyer assistance programs in her state of California. The Consumer Financial Protection Bureau has information about federal homebuyer assistance programs, including FHA loans, and links to state and local programs.
“Now is the time to do it,” she said. “It is the beginning of the year and that’s typically when the coffers are full.”
Make a plan to reduce your mortgage payment
Financing a home can become more complicated when mortgage rates are higher because buyers want to find ways to reduce the interest rate they lock-in, which can save them hundreds of dollars a month.
One way to cut your payment is to make a larger down payment, but that requires additional available cash or a family gift.
Borrowers can also lower monthly payments by paying more upfront to buy down their mortgage rate. This will lower the loan’s interest rate, either permanently or temporarily. But, it takes about five years to break even on paying down one point. It might not make sense if it seems rates are going to be meaningfully lower in that time or you don’t plan to stay there that long.
Another way a buyer can reduce monthly payments is to ask for a seller’s credit, or a seller’s concession, as part of the deal. Buyers can then use that money to buy down the interest rate on their mortgage and reduce their payments. Of course, in order to do that you’ll need to have a seller who is willing to work with you. If they have several offers, don’t hold your breath.
One thing all buyers can do to reduce their mortgage payments is to shop around at different lenders. It is good to look at options from different types of lenders including a traditional bank, an online lender and a credit union.
Mortgage rates are trending down, but it’s not going to be a perfect downward curve, said Melissa Cohn, regional vice president of William Raveis Mortgage.
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