Home shoppers wanting to buy right now might be reading headlines about the housing market…
Home shoppers wanting to buy right now might be reading headlines about the housing market that are scaring them away — low inventory, high prices, homes selling at an extremely fast pace across all price ranges, worries online real estate company Zillow.
But near-record low mortgage rates are creating a huge opportunity for buyers to get more for their money, and the freedom to telecommute is opening up home shoppers to new, and potentially more affordable, areas to live.
Right now, in the housing market, some of the biggest risks to buyers are paying more than you can afford in a bidding war and rushing into a home that is not a good fit.
To help buyers avoid these mistakes, Zillow if offering advice to help potential homebuyers confidently navigate a seller’s market.
A Zillow survey shows that for sellers who had at least one offer fall through, more than one-in-five could pinpoint issues with money, mortgage, or financing as the reason.
A better credit score can mean a difference of tens of thousands of dollars over the life of a mortgage, and you could discover it’s better for you to wait to buy until you can improve your score.
Either way, knowing your score a few months in advance and how it impacts your mortgage rate is an important first step.
Shopping around for a mortgage can potentially mean a difference of several hundred dollars a month. Make sure to talk to different lenders to ensure you get the lowest possible rate, and ask questions about the interest rate, down payment amount, and estimated closing costs — among others.
Pre-approval means you are approved for full financing and requires a more comprehensive finance and credit check, which differs from pre-qualification. Pre-qualification often works well for homebuyers who are unsure about their borrowing amount and need to know how much they can afford, but in the competitive housing market we’re in now, pre-approval is the way to go.
It allows you to make a confident offer more quickly and helps you stand out from buyers who might not be able to close as quickly.
Zillow survey data shows that 40% of buyers with a mortgage and 52% of first-time homebuyers receive loans or gifts from family and/or friends to help with the down payment.
Having that money transferred into your account well ahead of time will allow it to be factored into your pre-approval. Waiting to receive the gift after you make your purchase offer can delay the process and ultimately impact the ability to purchase the home quickly.
As you determine how much you can afford, do not forget to factor in enough to cover closing costs, or what you pay beyond the down payment, and may include taxes, appraisal fees and homeowner’s insurance — among others.
Maintenance costs alone reach above $3,000 per year for a typical homeowner. Preparing for these ahead of time can limit stress and shock after your home purchase, especially if your offer was right-at or over your budget.
When shopping for a mortgage, this is a good time to ask potential lenders what your estimated closing costs will be.
The current housing market is highly competitive — inventory is at historic lows, 36.4% below last year’s levels and around a quarter of homes are selling above list price. With this in mind, buyers need to prioritize exactly what they want.
Apart from finding a home within your budget, it also needs to fit your and your family’s needs. In a tight market, it’s highly unlikely any buyer will find a home that checks all their boxes, so outline what trade-offs you’re willing to make ahead of time to broaden your search.
Make a list of your top criteria when starting your home search and find an agent you trust to help find the perfect fit.
The speed of home sales continue to accelerate, with homes typically going under contract in about two weeks.
With this in mind, get a speed edge on your competition by using virtual or 3D home tours first to narrow down your options, and take advantage of self-tour options when available. With 12% of homebuyers willing to purchase a home sight-unseen, these virtual tools can help you make a decision more quickly and not miss out on the perfect home while waiting for a showing.
Keep in mind that real estate is extremely local, and while it’s good to pay attention to national housing market trends, make sure you understand what’s happening where you are shopping. Each market is different; something that works in one may not in another, and finding a good agent with extensive market knowledge will be valuable.
On Zillow, buyers can be connected with a local Premier Agent who will guide them through the homebuying process in their area and help them select the right homes to tour. Additionally, your agent is the best person to be up-front with about any trade-offs you might have — whether it’s neighborhood or home features — and what you’re willing to sacrifice.
The Bidding War
In today’s market, it’s very likely that buyers will end up in a bidding war. Zillow senior economist Jeff Tucker stresses the importance of using the knowledge you gained as you prepared your finances to set a hard ceiling on what you’re willing to offer and avoid spending more than you can afford.
An escalation clause can be extremely valuable in a competitive market. This is language included in your pre-approval that ensures your best offer is always in front of the seller.
The downside to an escalation clause is you might pay more than originally intended. To avoid going over budget, shop for homes that are below your maximum price point so your escalation offer stays within your budget. This gives you wiggle room for a bidding war and will make your top offer more attractive.
This is also where your agent comes in. A local agent who knows the market can be crucial to your home search in a competitive environment, and can help you understand what makes a winning offer in your area.