In many markets across the country, the number of buyers searching for their dream homes greatly outnumbers the number of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.
Even if you are in a market that is not as competitive, knowing your budget will give you the confidence of knowing if your dream home is within your reach.
Freddie Mac lays out the advantages of pre-approval in the ‘My Home’ section of their website:
“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”
One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”
Freddie Mac describes the ‘4 Cs’ that help determine the amount you will be qualified to borrow:
- Capacity: Your current and future ability to make your payments
- Capital or cash reserves: The money, savings, and investments you have that can be sold quickly for cash
- Collateral: The home, or type of home, that you would like to purchase
- Credit: Your history of paying bills and other debts on time
Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.
Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so as well.
Homeowners should not become overconfident in a seller’s market, or they might end up sabotaging their sale. Realtor.com® recently featured common home seller negotiation tactics that can backfire, including:
Starting a bidding war.
“If mishandled, people may assume the worst, and the best offer may walk away,” Sep Niakan, broker-owner at HB Roswell Realty in Miami, told realtor.com®. For example, bidding war problems can surface when failing to clearly explain up front how you intend to handle multiple offers or when you give an offer deadline that is too many days away (some buyers may just move on).
Arguing over repairs.
Buyers may walk if sellers refuse to make repairs that turn up during a home inspection. The seller needs to carefully consider how good the offer is before refusing to make repairs, says Lucas Machado, president of House Heroes in Miami. “When the buyer’s offer is high, and the seller tries to negotiate away from legitimate repairs, the buyer may feel the seller is taking advantage of them,” he says.
Staying adamant about the closing date.
Sellers may be trying to make the closing date so it perfectly aligns when they move into their new home. But buyers have scheduling issues of their own, too. “Sellers need to understand that they may have to move twice, since buyer and seller schedules seldom work out perfectly,” says John Powell, chief development officer at Help-U-Sell Real Estate in Tucson, Ariz.
Getting greedy over fixtures.
Fixture feuds are common ones. Sellers and their real estate agents need to carefully review before they list their home on what stays and what goes with the home. The buyer might “get so upset that a fixture they fell in love with is now missing that they won’t buy the home,” says Michael Hottman, associate broker at Keller Williams Richmond West in Richmond, Va. Replace anything valuable to sellers that won’t be staying with the house before showing it, or be willing to negotiate a comparable replacement. Read more: Fixture Feuds
Read more negotiation tactics that could sabotage a deal.
Source: “Hardball Fouls: 6 Home-Selling Negotiation Strategies That Can Backfire,” realtor.com® (Nov. 1, 2017)
With inventories so tight, some home buyers may be giving a fixer-upper home a second thought. The price point and location may attract more buyers to bite, even though the home itself may need some TLC. But how do you tell a hidden gem from a hidden mess when shopping for a fixer-upper?
Paul Skema, president of the architecture and construction firm Roth Design + Build, and Jean Brownhill, founder of Sweeten, an online contracting service, recently shared important considerations for home shoppers looking at a fixer-upper. Here are a few of their tips, via Curbed.com:
Determine the scope of the project.
Are the renovations mostly cosmetic or are they structural? “Before you even look for an apartment or home, you want to understand what type of project you’re comfortable with,” says Skema. Projects where owners start making additions or knocking down walls can add a lot of money, time, and risk. “One small bathroom renovation is hundreds of decisions you’re going to need to make,” says Brownhill. “You have to understand who you are as a person and how easily you make decisions.”
Set a budget.
After the down payment, how much money will your buyers set aside for the fixer-upper? Factor in unexpected costs, such as planning an alternative living situation while the work is being done on the home. The architect and contractor should be able to provide you with estimates. “By setting the price, you’re setting the approximate level of craft, finishes, and customer service that you’re looking for,” Brownhill says.
Establish a team.
Larger projects require an architect, who will then hire a general contractor and then subcontractors. Homeowners will need to establish a communication path to prevent delays or budget pitfalls. And don’t just hire the lowest-bidding architect or contractor, Skema warns. “Higher-quality firms limit the risk of the project,” Skema says. “Cheaper firms, many with less knowledge and less experience, will require more involvement from the homeowner and ultimately bring more risk.” Select a team with the right experience, solid references, and a communication style that is complementary with yours.
Meet the neighbors and the building association.
Significant renovations may require approval from the homeowner’s association. Meet your neighbors beforehand and warn them about the home renovations so as not to aggravate them. Learn about the permit process through your city’s building department ahead of time. Upgrading plumbing and electrical systems, moving walls, or changing structural elements will likely require permits.
Make sure the contractor has both liability insurance and workman’s compensation. Also, ensure your homeowner’s policy will protect you from any contractor-caused issues.
See more tips on buying a fixer-upper at Curbed.com.
Source: “Considering a Fixer-Upper? Here’s What You Need to Know,” Curbed.com (Dec. 6, 2017)
Mortgage interest rates, as reported by Freddie Mac, have increased over the last several weeks. Freddie Mac, along with Fannie Mae, the Mortgage Bankers Association and the National Association of Realtors, is calling for mortgage rates to continue to rise over the next four quarters.
This has caused some purchasers to lament the fact that they may no longer be able to get a rate below 3.5%. However, we must realize that current rates are still at historic lows.
Here is a chart showing the average mortgage interest rate over the last several decades:
Though you may have missed getting the lowest mortgage rate ever offered, you can still get a better interest rate than your older brother or sister did ten years ago, a lower rate than your parents did twenty years ago, and a better rate than your grandparents did forty years ago.
Multigenerational homes are coming back in a big way! In the 1950s, about 21%, or 32.2 million Americans shared a roof with their grown children or parents. According to an article by Realtor.com, “Nearly 1 in 5 Americans is now living in a multigenerational household – a household with two or more adult generations, or grandparents living with grandchildren – a level that hasn’t been seen in the U.S. since 1950.”
Another report that proves this point is the National Association of Realtors’ (NAR) 2017 Profile of Home Buyers and Sellers which states that 13% of home buyers purchased multigenerational homes last year. The top 3 reasons for purchasing this type of home were:
- To take care of aging parents (22%, up from 19% last year)
- Cost savings (17%)
- Children over the age of 18 moving back home (16%, up from 14% last year)
Valerie Sheets, Spokesperson for Lennar, points out that,
“Everyone is looking for the perfect home for any number of family situations, such as families who opt to take care of aging parents or grandparents at home, or millennials looking to live with their parents while they attend school or save for a down payment.”
For a long time, nuclear families (a couple and their dependent children) became the accepted norm, but John Graham, co-author of “Together Again: A Creative Guide to Successful Multigenerational Living,” says, “We’re getting back to the way human beings have always lived in – extended families.”
This shift can be attributed to several social changes over the decades. Growing racial and ethnic diversity in the U.S. population helps explain some of the rise in multigenerational living; “Data suggest that multigenerational living is more prevalent among Asian (28%), Hispanic (25%), and African-American (25%) families, while U.S. whites have fewer multigenerational homes (15%).”
Additionally, women are a bit more likely to live in multigenerational conditions than are their male counterparts (12% vs. 10%, respectively). Last but not least, basic economics.
Valerie Sheets brings to light the fact that home prices have been skyrocketing in recent years. She says that, “As home prices increase, more families tend to opt for living together.”
Multigenerational households are making a comeback. While it is a shift from the more common nuclear home, these households might be the answer that many families are looking for as home prices continue to rise in response to a lack of housing inventory.
Whether you are a renter who is searching for your dream home or a homeowner who feels like your only option is to renovate, you have at least one thing in common: feeling stuck in place.
According to data from the National Association of Realtors’ Profile of Home Buyers & Sellers, the average amount of time that a family stays in their home remained at 10 years in 2017. This mark ties the highest marks set in 2014 and 2016. Back in 1985, when data was first collected on this subject, homeowners stayed in their homes for an average of only 5 years.
There are many reasons why homeowners have decided to stay and not to sell. A recent Wall Street Journal article had this to say,
“Americans aren’t moving in part because inventory levels have fallen near multidecade lows and home prices have risen to records. Many homeowners are choosing to stay and renovate, in turn making it more difficult for renters to enter the market.”
Sam Khater, Deputy Chief Economist for CoreLogic, equated the lack of inventory to “not having enough oil in your car and your gears slowly [coming] to a grind.”
Historically, a normal market (in which prices increase at the rate of inflation) requires a 6-7 month supply of inventory. There hasn’t been that much supply since August of 2012! Over the course of the last 12 months, inventory has hovered between a 3.5 to 4.4-month supply, meaning that prices have increased and buyers are still out in force!
Challenges in the new-home construction market have “helped create a bottleneck in the market in which owners of starter homes aren’t trading up to newly built homes, which tend to be pricier, in turn creating a squeeze for millennial renters looking to get into the market.”
“Economists said baby boomers also aren’t in a hurry to trade in the dream homes they moved into in middle age for condominiums or senior living communities because many are staying healthy longer or want to remain near their children.”
So, what can you do if you feel stuck & want to move on?
Don’t give up! If you are looking to move-up to an existing luxury home, there are deals to be had in the higher-priced markets. Demand is strong in the starter and trade-up home markets which means that your house will sell quickly. Work with your real estate professional to build in contingencies that allow you more time to find your dream home; the right buyer will wait.