The Current Landscape For A Home Buyer
Anyone trying to buy a house right now has to understand that it’s not going to be a sprint. It’s going to be a marathon. Instead of putting an offer on three homes and finding something in a month, it’s probably going to take putting 20 offers over a 6-8 month time frame. Like doing a remodel now, many stars have to align to buy a home. Luckily, we have Natalie Armijo, a realtor in Morristown, New Jersey, to share her tips on buying a home right in during the pandemic.
Natalie is originally from New Mexico, worked on Capitol Hill, and has been in the industry for three years.
What Is The Environment Like Today For Home Buyers?
According to Natalie, last year, in March 2020, people didn’t know what was going on. People didn’t want to go to open houses, and the industry pivoted by doing virtual tours, but people are starting to do live tours again.
To help boost the economy during the pandemic, the Federal Reserve lowered interest rates to encourage people and businesses to borrow money. Some of this money went to buying real estate, and home buyers can afford a larger mortgage.
There are also institutional investors like BlackRock that are adding properties to their portfolio. This combination of low rates and institutional investors seeking returns is causing bidding wars among buyers. The competition has caused home prices to increase by 15% over the past year. A much higher appreciation than the standard rate of 3.5% to 3.8%.
Another contributor to the increase in home values is that people stay home more during the pandemic, and work culture has shifted from commuting to an office to one where people can work from home. Staying in your home raises your self-awareness of what needs to change and that a different space might be required.
This surge in demand then caused home inventory to go down, and the US needs about 2.1 million homes built each year for the next ten years to meet demand. Home prices might level off in the future if interest rates go back up. Still, the shortage in inventory is probably going to keep the appreciation level higher than historical rates.
What Home Buyers Should Do To Help Them Reach Their Goals
Natalie says many bids are coming in way higher than the asking price and buyers feel like they have to overbid to obtain the home.
She says there are many emotions in buying and selling a home, which can cause buyers to overbid. And the best thing for homebuyers is to think clearly about the situation. Don’t let emotions cause you to make an irrational decision like waiving an inspection of a home if you don’t have the funds to fix the house’s foundation.
Understandably, people are waiving inspections now because the market is so competitive, and each review costs about $450 to the buyer. Doing this on five homes can be $2,250, and the home buyer might not get the home. If someone is going to buy a home, it’s essential to make a budget for inspections and have a general idea of what you want in a home so that you only put in offers on homes that best meet your needs.
Being desperate is hardly a great strategy when it comes to buying a home. Picking a home just to pick a home can cause someone to be stuck in a situation that is not good. Natalie recommends that you learn how to be patient with the process and says it’s better to be happy with your home over the lifetime you own it than having buyers regret when the buyer’s high wears off.
What About First Time Home Buyers
For many folks, their goal is to obtain their first house, and in this environment, they are really at a disadvantage. They don’t have the resources compared to institutional investors and people with a house to sell. These folks are coming in with all-cash offers, making the transaction much easier for the seller to go through than an FHA loan or a VA Loan.
This is especially true doing the bidding process. If a first-time home buyer bid $50k over the asking price, and the home appraiser comes in and values the home at the asking price, then that buyer will not get a loan for their bid price. They will have to pay cash for the difference, and many first-time buyers won’t have the money on hand to finish the transaction. Natalie has seen a $7k difference cause a deal to fall apart.
Since Natalie does business in New Jersey, she says it’s an attorney state where buyers and sellers need one. Natalie thinks this is good for the market because it allows a party to have contingencies to get out of the contract, whether the buyer cannot secure a mortgage loan or if the inspection doesn’t go through. An appraisal contingency is for when the home value comes in under the bid price. Natalie says this adds about $1500 to the buying process but recommends it because the lawyer keeps track of everything.
How To Secure That First Bid Price
Instead of finding a turnkey home that already has everything set up, Natalie recommends going for one that needs work. These homes will be under priced, and they will get fewer bids on them. They do require work but have the opportunity to have the most significant increase in home value after the work is completed. Or a buyer can seek out a home that has been on the market for a while, which can signal that the seller might offer a better deal now.
If a home buyer can bring a 20% downpayment to the mortgage, this will help out more than if someone makes a 3% down payment with FHA Loan. The FHA has more requirements that have to be met, which slows down buying the home. When someone is doing the mortgage route, Natalie says that you should expect this process to take 30-45 days.
Sellers like all cash transactions because they are the fastest and have fewer requirements for getting the deal done. It’s important to know that someone can make a cash offer on a home and then find a mortgage broker to finance the house afterward, so the buyer improves their cash position.
When it comes to writing a letter to the seller, Natalie says it’s worth a shot, but most realtors think it has a low success rate in today’s market.
It’s also essential to meet all the deadlines. Natalie says that homebuyers are pretty good at this, but be prepared to look for supporting documents like tax returns and bank statements that will need to be submitted along with a mortgage application.
How Do Mortgages Look Like Right Now?
Natalie says that conventional loans with a 20% down payment are the best if a buyer can afford to do it. Natalie had a client who received a 30-year mortgage for 2.37%, and with rates so low, it doesn’t make sense to do an ARM or variable rate mortgage in this interest rate environment.
What To Do After You Get Your Home?
Doing a kitchen and bathroom remodel would be the first thing to increase the home value the most, but don’t get overwhelmed by new projects. Just focus on doing projects in phases. Items don’t have to be finished right away.
It is also essential to maintain the HVAC system as best as possible. Ensure it gets its maintenance done because people want to stay warm and cool, and a neglected HVAC system can be expensive to replace.
Also, look at getting a home warranty which costs about $500 for the year, where if anything breaks in the home, the home warranty will take care of a broken appliance. Homebuyers are also expected to pay a deductible.
Any Last Takeaways?
The best thing that buyers can do first is patient since buying a home will be competitive, and there will be many requirements to go through. So a home buyer needs to do their research by getting pre-approved for a mortgage to see how the house they can get and make a list of what you want and don’t want in a home and neighborhood. You will live in this house and want to make sure you are as comfortable as possible. Also, don’t overextend yourself with a mortgage where you’re house-rich but cash-poor. So make sure you stick with your budget, which can relieve a lot of future stress.
Also, someone is looking for a house in the Morristown, New Jersey area. You can contact Natalie here.
*Before you make any changes with your financial situation, please do your own research or contact a professional like myself to help ensure you make the best decision for your own personal situation*
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