As mentioned in earlier articles, Covid-19 is a trend accelerator. When it comes to purchasing a property, covid-19 has been both the greatest and worst of times (historically low mortgage rates in 2020 and part of 2021). (home prices are skyrocketing).
According to the National Association of Realtors, the United States lacked between 5.5 million and 6.8 million housing units by the end of 2021. This comprises detached single-family homes, townhomes, condominiums, and rentals of various types and price points. With the recent announcement that the Federal Reserve will raise the federal funds rate three times this year, mortgage interest rates are anticipated to rise above their present historic lows.
How does it affect you? There will continue to be a shortage of available homes, and they will be considerably more expensive than they are now. If purchasing a home is on your bucket list, what can you do? Consider the following:
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1. Know your financial limitations.
The issue with watching lovely homes for sale online or on television is that it influences your home preferences. You may image yourself seated on a gorgeous white sofa in front of a crackling fireplace, with your kitchen island topped with marble in the backdrop.
There is nothing wrong with that vision except than the possibility that you cannot afford it. And with mortgage rates certain to climb this year, it is more crucial than ever to know just how much you can spend on your ideal home.
Start with the four important components of affordability: your down payment savings, household income, debt load, and credit score. Your credit score has a direct bearing on the loan’s interest rate, which multiplies the amount you can borrow. Your monthly debt service payment will be deducted from the total amount you can spend on your mortgage, property taxes, and homeowners insurance.
Once you’ve mastered these four factors, it’s time to get preapproved for a loan.
2. Get preapproved for your mortgage.
When you obtain preapproval, your lender commits in writing to fund your loan, provided that the home you select appraises at or above its purchase price. Because the lender considers your debt payments, income, and credit score, getting preapproved enables you to determine exactly how much mortgage you can carry. Add the amount you have available for a down payment to this figure to arrive at an estimate of the purchase price. (Do not forget to set aside the few months of cash reserves required by the lender.
Keep in mind that a lender’s preapproval letter is not the same as being prequalified for a loan. A genuine preapproval letter indicates that a lender has assessed your credit, reviewed your file, and decided to fund the loan. A prequalification letter is when a lender informs you that, based on the unverified information you have provided, they feel you qualify for a specific loan amount. Some lenders will provide you with a preapproval letter, but it carries so many conditions that it is not actually a preapproval.)
3. Determine the trade-offs you are willing to accept.
Obviously, you will not be able to purchase every item on your wish list. Make two lists: one of everything you desire in a home, and the other of everything you cannot live without. Ilyce refers to this in her book “100 Questions Every First-Time Home Buyer Should Ask” as the “Reality Check.
Creating these two lists can help you determine what sacrifices you are willing to make to obtain the majority of your desires. Each option and the ranking you assign to it has real-world ramifications. In the book, Ilyce describes how we exchanged a parking space for a wood-burning stove, and how regrettable that decision was when we purchased our first automobile.
4. Explore alternative methods for purchasing your first piece of real estate.
If you want to become a homeowner but cannot afford to purchase a single-family home in your preferred neighbourhood, be inventive:
Consider purchasing a two- or three-family property where you live in one unit and rent out the others; Buy with a partner or friend (if you are single, be sure to obtain a partnership agreement);
Construct a multigenerational household to leverage additional revenue (another emerging trend); Buy an investment property while renting it out (perhaps you can move in later); Or purchase a home in a vacation destination you frequent. With the progression of covid-19, remote work is becoming increasingly prevalent.
5. Be intelligent about the procedure.
Assemble your home-buying team, which should consist of an experienced traditional real estate agent or exclusive buyer agent, a professional home inspector, and a mortgage lender; if you’re purchasing an investment property, add a tax expert and a real estate attorney, where real estate attorneys are typically employed. All of these specialists should share their knowledge and experience willingly and courteously. If not, find someone else.
Given that the majority of residential real estate markets will continue to favour sellers for the foreseeable future, you’ll need to be as shrewd as possible to find a home you’ll adore.
In this regard, be sure to educate yourself: Read, pose questions, and evaluate your own presumptions. And remember, the homes you see will likely not be as attractive as the ones you see on television, so do not be disheartened.
After closing on a house, you have the rest of your life to decorate it to your heart’s delight.
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