Homebuyers have faced tight supply issues this year, and obtaining leverage in this market has been challenging.
For homebuyers who want to nab their dream house in the neighborhood they have been eyeing, they still have leverage, but here are some tips to improve the process.
Home Buying Tips
Before consumers start shopping, they should work on improving their finances and avoid making any large purchases such as a car. After finding out your FICO score, the goal is to find ways for it to rise above 700, which means you will qualify with more lenders and obtain a lower interest rate, saving you thousands of dollars, said Jonathan Smoke, chief economist for realtor.com, a Santa Clara, Calif.-based real estate company.
Determine how much you can carve out of your savings for a down payment, but still maintain six months of emergency funds, especially if you are buying an older home which may have unexpected repairs.
The average down payment in 2016 is 11% across the U.S., but it depends vastly on the market and loan you are seeking.
“If you are struggling to come up with a down payment necessary for your market or type of mortgage, research down payment assistance programs,” he said. “Get all of your financial records organized, including recent bank and financial statements, the last two years of income tax filings and pay statements.”
There are many opportunities available since mortgage rates remain near historic lows and are unlikely to see substantial moves soon.
“The buying opportunity is still substantial and now the annual cycle means you will face less competition on homes that are on the market,” Smoke said.
Sellers want to see serious buyers, so getting pre-approved from a lender is important.
“A pre-approval letter as part of an offer will communicate to the seller that you have the ability to close,” he said.
Sellers still have an advantage and even though there are fewer potential buyers with fall right around the corner, the existing inventory remains low, so getting a house under contract can still be problematic, Smoke said.
“Don’t expect sellers to feel desperate,” he said. “Sellers may still act like it is the spring. Listen to the advice of your realtor on the composition of the initial offer so that you are more likely to keep the conversation going rather than face complete rejection.”
While you continue to search for another home, maintain your savings and increase the amount of your down payment and keep paying down your credit cards and student loans. Consumers who will be receiving a bonus in December should include these funds it into their down payment. If the interest rates for your credit card rates are fairly low, consider bulking up your down payment since mortgage rates are very low, said Colby Sambrotto, president of USRealty.com, a New York-based online real estate broker. said. These measures will help increase your odds as you house hunt.
“Ask your lender to recalculate your loan preapproval to reflect your updated debt-to-income ratio and the greater amount you can put down,” he said. “That can reframe your search parameters.”
Down payment assistance is available through employer and community group programs. Some companies will offer loans if you remain employed there for a certain number of years, said Sambrotto. A good source for more information about various programs is Down Payment Resource.
“The loans are usually geared to encourage employees to buy around a certain area, usually within walking distance of the employer,” he said.
Location is Key
Transportation can emerge as a “hidden cost” if your commute includes costly tolls or you want quicker access to cultural and sporting events, schools for children, shopping districts and professional education opportunities.
“Narrow your search to neighborhoods that offer economical options for commuting and routine errands,” Sambrotto said. “Look for neighborhood groups on Facebook and ask to join the conversation so you can quiz current residents about the true cost of living in that area.”
While homeowners might prefer a standard standalone house, a two-family duplex might be a better option, said David Reiss, a law professor at Brooklyn Law School in New York. These homes have a clear advantage because they generate investment income along with various financing, tax and capital gains advantages which the traditional single-family house does not have.
“Think through your preferences and then take a fresh look at the market,” he said. “You might have that idealized picket-fenced house in mind, but a duplex will expand the number of houses you can look at. They also bring along all sorts of additional maintenance responsibilities with them, so they are not right for everyone.”