There’s no denying the housing market has been on fire. According to the National Association of Realtors, the median U.S. home price increased 16% to just over $350,000 over the past year. While home price appreciation is excellent news for current homeowners, it puts potential buyers in a difficult position.
With many houses selling for over asking price with multiple offers, how can buyers compete in what seems to be a firmly entrenched seller’s market? While many experts are hopeful that the blistering pace of price increases will slow in the coming year, there are many things home buyers can do now to set expectations and increase their chances of finding a new home.
Here are six tips for home buyers to help navigate buying a home in 2022.
Set Realistic Expectations
In a hot housing market, you may have to compromise on your wish list to secure a home. According to Victoria Cornell, you don’t have to find your forever home right off the bat. “Purchasing your first home is exciting and is a big life goal for so many.”
She goes on to say that in a strong seller’s market, “it’s okay to focus on getting your foot in the door and not purchase your dream house. You can always renovate, build an addition, or move again later. Your first purchase into the housing market is the first step to many other opportunities.”
Buy What You Can’t Change
One of the essential rules in real estate is “location, location, location.” While the location isn’t everything, it certainly falls under the category of something you can’t change about a house after you’ve bought it. According to a recent Bankrate survey, 43% of homeowners have at least one regret about buying their current home. While some regrets are fixable, such as paint colors or a kitchen, others are not.
Andrew Karpiak of Kamloops Living, a real estate firm in the interior of British Columbia, says to focus on making sure you are happy with the things you can’t change as a first-time home buyer. “Everyone wants to buy that elusive dream property, but in my experience, the most important tip I can give is this: buy what you can’t change. This could be the location, lot size, school zone, or view. Whatever is most important to you, focus on that first. The flooring, paint colors, cabinets, etc., can all be changed over time.”
Inflation Can Be Your Friend
Many first-time home buyers are understandably worried about rising home prices. With inflation surging over 7% to levels not seen since 1982, almost everything is more expensive than a year ago. However, with interest rates still near historic lows, you can borrow money now and effectively pay it back with cheaper dollars in the future.
Max, a certified credit counselor, and money coach breaks down the math on calculating the real interest rate on your loan. “If the nominal interest rate on your loan is 3% and inflation is 7%, your real interest rate on the mortgage is negative 4%. So instead of paying interest to the bank, you are, in real terms, earning a 4% return. It is a sweet feeling knowing the bank is paying you to borrow money from them. Debt is now the asset when it comes to real estate.”
Understand the Hidden Costs of Homeownership
The true cost of homeownership is much higher than just the monthly mortgage payment. You are also responsible for property taxes, insurance, HOA dues, utilities, etc. One of the most significant expenses first-time home buyers can forget to account for is maintenance and repairs.
Emily Herrig, owner of Emergency Plumbing on Call, a marketing company for plumbers, advises budgeting in advance for home maintenance costs.
“As a general rule of thumb, you can expect to spend 1-2% of the purchase price each year on repairs. For a $350,000 house that amounts to $3,500 – $7,000 a year, or nearly $600 a month. While that may seem like a lot of money, remember that this includes large, infrequent expenses like replacing your HVAC system, roof, or driveway as they age.”
Get Pre-Approved Before Making an Offer
In today’s hot real estate market, being pre-approved for a mortgage is almost a prerequisite for submitting an offer. Speaking with a lender or mortgage broker and providing your financial information will also give you a good idea of how much you can afford to narrow your home search.
John Dealbreuin, a real estate investor in the San Francisco Bay area, highlights the benefits of obtaining a mortgage pre-approval.
“In this competitive seller’s market with homes selling over asking price, buyers need to make sure they get their foot in the door with their finances in order. Having a pre-approval letter in hand indicates to the seller that you are serious about the home buying process. The added benefit to you as a buyer is feeling secure about bidding on houses knowing that lenders have validated your borrowing power and are comfortable with the loan amount.”
Hire a Good Home Inspector
Buying your first home is likely the biggest purchase of your life, and most people are not experts on home maintenance, repairs, and code compliance. There are many things to know before buying a house, and it can pay dividends to hire a professional to see what problems may be lurking behind the walls of your soon-to-be home.
A home inspector will look at some big-ticket items such as the electrical and plumbing systems, roof, foundation, and much more.
Buying Your Dream Home
While house shopping can be overwhelming for home buyers, setting realistic goals can be an important first step. Unfortunately, it can be tempting to let the frantic pace of the market convince you to stretch your budget past your comfort level.
Still, by following these tips and keeping the bigger picture of your financial health in mind, you can start your home-buying journey armed with the information you need to succeed.
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