Put yourself in the best possible position for purchasing your next home.
As you’ve probably seen in your market, some homes are now sitting on the market for weeks, or even months on end. A market shift like this hasn’t been seen since 2007, which could mean opportunity if you are a qualified buyer, and can stomach temporary interest rate hikes.
While borrowing money in today’s market is relatively expensive when compared to years prior, negotiating on terms such as contingencies and longer escrows has gotten easier.
Read on to learn more about which angles you can take to put yourself in the most favorable position possible on your homebuying journey.
Take a step back: should you buy a home right now?
With mortgage rates higher than they’ve been in recent memory, it’s normal to be a little hesitant.
Hyper-low interest rates brought on by the pandemic are now a thing of the past, with the Fed having raised interest rates to a whopping 5-7%, depending on when you’re reading this. It’s the highest level since January of 2008.
Many buyers are waiting out the market in hopes of lower interest rates and a dip in home prices. But, there are some benefits to buying a home in today’s market.
The seller’s market has tilted
On average, we’re seeing 2-3 months of inventory supply across our markets, meaning that if homebuyers keep buying homes at current rates, there’s enough inventory to last 2-3 months–a pretty drastic increase from about a month of inventory this time last year.
Along with an increase in days on market, an increase in supply means that buyers have a wider selection of homes to choose from, and can go at a more leisurely pace than before. Buying now means you’ll have more options available, less competition, and more wiggle-room. Sellers may be open to lower asking prices or flexible contract terms depending on their situation, as well.
Pro: Build equity immediately
An advantage to buying a home is the opportunity to build equity. Whether it’s a seller’s or buyer’s market, you start building equity as soon as you acquire the property–something that’s impossible to do as a renter.
Once you’ve paid down your mortgage a bit – tapping into home equity is a major benefit for homeowners who need to access a large sum of money in a reliable and mostly inexpensive way. The longer you own your home, the more equity you build.
Homeowners can use equity to make home improvements, or even put a down payment on a second property. It’s an excellent financial tool–plus, you can live in it! Good luck trying to live in stock portfolio. 😉
Con: Interest rates are going up which affect monthly payments
Unless you’re buying your home in all cash, you’ll need to apply for a mortgage loan. Since interest rates are high, monthly mortgage payments will be high as well.
Rising interest rates can be the difference between being able to afford a home, or not. For a $450,000 mortgage financed at the current average rate of 7.32% on a 30-year home loan, monthly payments are $3,091.
This can be discouraging when compared to the near-zero interest rates set during the pandemic. Qualifying borrowers that were able to take advantage of this opportunity to refinance their mortgage loans and are paying less interest.
Luckily for you, the same can be done in the future. If you agree to an adjustable rate mortgage (ARM), you may be able to refinance when rates go down again.
Comparing costs of renting to owning on a monthly basis
Understanding the cost of paying rent vs paying a mortgage goes beyond monthly rent and mortgage payments. The real cost of owning a home includes expenses that are minimal or non-existent as a renter.
Property taxes are unique to homeowners. Renters don’t usually pay property taxes. In 2019, homeowners with a mortgage paid $3,695 in property taxes.
Utility bills are also higher for homeowners. They paid an average of $5,152 on utilities in 2019, while renters paid $2,736.
Maintenance costs are also a significant expense to homeowners. Renters generally have maintenance costs covered by rent. In 2019, homeowners with a mortgage spent $2,812 on maintenance and repairs.
Generally, buying a home is almost always going to call for higher monthly payments in the same area.
Assessing your short and long term goals
You may be surprised to find out that despite these numbers, renters still pay more in the long-run. This is because mortgage payments cost less than rent when you factor in appreciation, and inflation over time. In 2019, homeowners paid $7,229 towards their mortgages, including interest, while renters paid $11,979 in rent. On average, homeowners paid $4,750 less than renters on their leases.
As a homeowner, you enjoy the stability of knowing your monthly housing costs won’t suddenly go up. And if they do, at least the payments you’re making are going towards something you own.
There’s a lot of ways to invest your money, but you can rarely go wrong with investing in real estate. As a tangible asset that appreciates over time, purchasing property in the United States has almost always been a solid long-term investment.
You can live in the home, acquire cash flow through rental income, take out home money for a second investment, or sell the property for a higher value at a later date.
Negotiating price
How much a buyer can ask for below the selling price depends on the condition of the home and comparable sales. In a buyer’s market, it’s acceptable to offer below asking, especially if the home requires extensive repairs, such as a roof replacement or foundation reconstruction.
Your Flyhomes Agent is always a good person to lean on when considering these decisions. Your Flyhomes Agent will know how to phrase questions and requests in a way that won’t jeopardize your interests as a buyer.
The importance of inspections and appraisals
One thing you’re able to do in a buyer’s market that is harder in a competitive seller’s market is submit offers contingent on inspections and appraisals.
Inspectors evaluate the condition of a home, searching for major issues such as foundation cracks, problems with HVAC systems and water damage.
An appraiser conducts their own inspection of the property with the ultimate goal of assessing its true worth. Appraisers take into account square footage, home amenities, current market trends, and recent sales of similar properties.
If the home inspection reveals major damage or if the appraisal comes in lower than what you had agreed to in the purchase agreement, you can use these reports to negotiate on price.
Negotiating contract terms
As a buyer in today’s market, it’s important you understand that the current market is favorable for negotiating contract terms. As mentioned before, home price isn’t the only aspect of the home sale to consider.
Favorable contract terms such as longer escrow periods and contingencies provide buyers with the flexibility they need to move forward with a home purchase, confidently that are usually out of reach for buyers in a seller’s market.
Wrapping up
The market is experiencing a shift, and if you’re considering buying a home, now could be the time to take advantage of increased housing inventory by negotiating on things like price and contract terms.
Higher mortgage rates are naturally scaring some buyers away, but if you can stomach it-it’s just one aspect to consider when buying a home. Remember, you can usually refinance your home loan once interest rates go down.
If you’re interested in learning about how you can take advantage of today’s shifting housing market, hit one of the buttons below to get started! ⬇️
Written by Zach Boughaffour
