Here’s an understatement for you: Buying a home today is not the same as it used to be. In fact, it’s a whole new ballgame.
The COVID-19 pandemic, of course, is largely to blame—throwing the economy for a loop, interrupting supply chains that feed home construction efforts, and forcing many of us to reassess just how much space we truly need. As a result, record numbers of people picked up and moved, sparking a full-boil housing market rife with bidding wars. And now, with interest rates on home loans climbing, things may get even more intense, fueling a sense of “It’s now or never!”
With all of these forces swirling, you need to hit refresh on your mindset and the toolkit you bring to the home-shopping challenge. To help you along, we’re sharing five new rules of homebuying in 2022.
1. Old rule: Find your dream home, then finalize your mortgage paperwork
New rule: Lock in a mortgage before you start your search
In the past, getting pre-approved for a loan was something you could think about after you’d found a house you wanted to buy. Today, though, this approach can stall your momentum straight out of the gate. In today’s fast-paced market, it’s essential to have your ducks in a row and finish your mortgage pre-approval before you make an offer.
“You should be pre-approved by a lender and knowledgeable about your finances before you even begin your home search,” says Beverly Burris, an agent with William Means Real Estate in Charleston, SC. “With houses going under contract as quickly as they are right now, often within days or sometimes hours of going to market, there is no sense in going to see a property before speaking to a lender and learning what you can afford.”
Putting off the pre-approval process could lead to your dream home passing you by, she warns.
“If you wait until after you see a home you like, you won’t have time to speak with a lender or submit your mortgage application before the offer deadline,” she adds.
Many homes today will have offer deadlines that will be impossible to meet if you’re muddling through mortgage paperwork.
Furthermore, having a mortgage pre-approval letter in hand when you make your offer will show sellers you’re serious and can follow through with your purchase. This, in turn, will give you the edge over any competing buyers who haven’t completed this crucial step.
2. Old rule: Shop for homes you can afford
New rule: Shop for homes priced below what you can afford
Traditionally, once you had a pre-approval in hand, that’s the amount that you’d use to set your budget when shopping for homes. After all, a pre-approval tells you (and the seller) how much the mortgage company is willing to give you as a loan.
In today’s market, you may want to structure your budget a little differently.
Lori Ozley, a manager with Birmingham HomeBuyers in Birmingham, AL, advises buyers to look at homes with list prices that fall below the top of their price range.
“These days, houses are selling for more than their list price and, as a buyer, you’re more than likely going to end up in a bidding war,” she explains. “If you look at properties that are under your budget, you’ll have room to submit a competitive offer that goes above the asking price.”
Let’s say your budget is $375,000 and you are touring homes that cost that much. Chances are, the homes that list for $375,000 will sell for a chunk more than that. Your mortgage pre-approval won’t cover the overage, and you will be an unqualified bidder. To avoid falling into this trap, shop below your means so you have room to go up.
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