How to be successful in today's real estate market
The affordability of living space is falling. In fact, according to a new report from ATTOM Data Solutions, today's homes in 61% of the US states are less affordable than the historical average.
But that doesn't mean that you should give up your dream home. It just means you have to get creative.
If you plan ahead and be smart with your financing, home buying could be a lot cheaper than you thought. Here's what to do.
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Typical costs when buying a house
First things first, you should know what the cost of buying a home is so that you can budget accordingly.
Today's home buyers should plan to:
The deposit – 3-20% of the sales price Closing costs – 2-5% of your home loan amount Deposit – Approximately 1-3% of the purchase price of the house, which is paid when you submit the offer and will later be added to your deposit
For example, suppose you buy a home worth $ 450,000. If you are planning to cut 20 percent, your up-front costs could be something like this:
20% Down Payment: $ 90,000 2.5% Closing Fee: $ 9,000Total cost of buying a house: $ 99,000
However, even with house prices rising, you don't necessarily need a large down payment.
Today's buyers can often qualify with just 3 percent less. (Or reset to zero if you meet special eligibility requirements.)
Let's say you opt for a 3 percent lower traditional loan instead of the 20% lower. You now need to pay for private mortgage insurance (PMI) that will increase your monthly mortgage payments. However, your upfront costs are far lower:
3% Down Payment: $ 13,500, 2% Closing Fee: $ 8,730Total Home Purchase Cost: $ 22,230
As a homebuyer, you have a lot of control over your own expenses.
Make sure you do your research on loan options and mortgage lenders before buying. This could save you thousands.
Find a cheap home loan (July 7, 2021)
8 Tips to Cut Your Costs as a Home Buyer
Fortunately, home prices aren't the only factor that affects affordability.
If you are looking to buy a new home and are discouraged by the rising cost of home ownership, try one or more of these strategies to help you stay on budget:
1. Look for your mortgage
Mortgage rates vary from one mortgage lender to the next – sometimes quite a bit. So go shopping This is one of the best ways to ensure you are getting the lowest price possible.
It's best to compare quotes from different types of lenders – a credit union, bank, well-known mortgage company, and an online lender.
You should also consider your home banking institution as they may offer loyalty discounts or perks that you can take advantage of.
Remember: the lower your interest rate, the lower your monthly payment. This can help offset rising home prices and help you better afford today's housing.
Compare Mortgage Rates and Fees (July 7, 2021)
2. Negotiate your fees
You can also negotiate the fees associated with your mortgage. This is a great way to lower your closing costs and save money upfront.
Start by asking lenders to lower their lending fees; Using another lender's offer can help with this.
Also, check your loan estimate for other lender fees, such as: B. an application fee or a subscription fee. They have leeway over all of these and may be willing to negotiate if they really want your business.
You should also jump to page 2 of your loan estimate and check the "Services You Can Buy" section.
Here is a list of fees you can shop for. Often times, comparison purchases for these services can help you save hundreds of even more on your deal.
Other tricks are:
Include the prepayment of the mortgage insurance premium on an FHA loan or USDA loan in your mortgage balance to save money when you close Save money upfront (depending on your priorities)
Just note that some costs are non-negotiable.
For example, your lender doesn't control the valuation fee, home inspection fee, homeowners association (HOA) fees, or title search / insurance fees. So plan for the full offer amount for these items.
3. Apply for a deposit and final financial aid
Even in this competitive real estate market, you don't need a large down payment to be successful – despite what real estate agents might say.
In fact, around 70% of first-time home buyers gave up less than 20% in the spring of 2021.
A small down payment can make buying a higher priced home difficult. But the down payment can help fill the gap in order to be able to afford your dream home.
Each state has several Down Payment Support (DPA) programs that offer grants and / or loans to make home buying more affordable. The funds can usually also be used for your down payment and closing costs.
Check with your loan officer or broker about local DPA options in your area. These programs make a huge difference in trying to afford a home in today's high-priced market.
4. Boost your credit
Boosting your credit score is another way to get a lower interest rate and make buying a home more affordable.
The logic behind this is pretty simple: borrowers with higher credit ratings are more likely to repay their loans and therefore are less risky for lenders. This allows lenders to offer these borrowers lower interest rates and generally cheaper loans.
So before you start buying a home, do a quick credit check first.
The best odds go to those with 760 points or higher. So if you're below this threshold, take some time to increase your score before moving on.
You can do this by paying off your debts, paying late or overdue bills, notifying the credit bureau of errors in your credit report, or even requesting an increase in the credit limit on one of your credit cards.
5. Choose your location carefully
Home prices vary widely from one city to the next. It all depends on the cost of living, local incomes, property taxes, supply, demand, and a whole host of other factors.
If you are really looking for a cheap (or just affordable) property then you should look outside of your current location. This can mean moving a few miles – to a cheaper suburb or a rural town – or even out of a state if you're in a particularly costly market.
Fortunately, many employers allow continued remote working even after a pandemic, so moving to a more affordable area can be easier.
6. Close at the end of the month
When you take out a mortgage loan, you pay for so-called "prepaid items" in addition to your down payment and other closing costs.
These cover mortgage interest, property taxes and home insurance premiums from the date of purchase to the due date of your first mortgage payment. And they can often run into hundreds or even thousands of dollars.
To avoid sky-high prepaid costs, try to schedule a closing date as close to the end of the month as possible.
Prepayments are calculated on a daily basis, which can reduce the number of days you need to cover and significantly lower your closing costs.
7. Buy a fixation upper
Ready-to-move houses are expensive. So, if you really want to find a bargain on a home? Consider a fixer upper.
You will have to put in some work (and money) updating the house. But it will often turn out a lot less than a move-in property would cost at full price.
Remember, there are mortgages out there that are designed just for these types of purchases.
For example, the FHA 203k loan – backed by the Federal Housing Administration – can help you buy a home and pay for repairs all in one.
There are other options too. So if down this route, speak to a mortgage broker about the best ways to fund your purchase and renovation before proceeding.
8. Set it up right
The housing costs depend on the season. Prices tend to be highest in spring and summer and begin to decline in autumn and winter. If you can, try to postpone your purchase for one of these cheaper times.
According to ATTOM, the absolute best days to buy a home are December 4th, January 26th, December 6th and December 26th. At the monthly level, December is the best choice while June is the worst.
Confirm eligibility to buy a house (July 7, 2021)
Will home prices fall in 2021?
During the COVID pandemic, low interest rates helped make home buying more affordable.
But soaring home prices and low inventory levels reversed the affordability trend in 2021.
"While super low mortgage rates certainly helped a lot, prices just shot up too much to hold historic affordability levels," said Todd Teta, ATTOM's chief product officer.
Unfortunately, home buyers shouldn't expect prices to fall anytime soon.
The reason? Simple supply and demand.
"Given the low mortgage interest rate environment, high demand and space requirements, we assume that this (housing) shortage will continue in the near future."
The US is in the midst of an epic housing shortage that will take builders a long time to fill. And demand – especially from first-time buyers – continues to outstrip supply.
"Given the low interest rate environment, high demand and space requirements, we expect this shortage to continue in the near future," said Freddie Mac in May 2021.
There is a chance that the current market could cool off a bit if interest rates rise and home buying interest falls. But for now, buyers shouldn't expect a massive turnaround in house prices.
Teta says: "The near future of affordability remains very uncertain, as it has been during the entire pandemic."
That said, if you're really motivated to buy a home this year, it's time to take affordability into your own hands.
Take affordability into your own hands
Home prices may go up, but there are still ways to cut your costs and afford a home in today's market.
Are you looking for your dream home? Work on improving your credit score, find your loan and plan the right time to buy a home. Home ownership can still be within reach (and budget).
Confirm your new plan (July 7, 2021)