It’s a good time to buy a house, even if the mortgage loan will cost you a little bit more.
There are some experts who fear a recession could happen in the next year or two that could cause housing values to stop rising or even dip. While no one wants to see their home values be stagnant or drop, if you’re a new homeowner, you’ll have less to worry about. Any correction in housing values will be temporary, and as long as you aren’t planning to move right away, you won’t feel any pinch when it comes to your house payment.
These days, the average first time homebuyer homeowner stays in place for 10 years before moving, so there’s plenty of time for the market to adjust and your home to gain value before you sell.
2. Plan to stay a while
While we’re talking about how long homeowners spend in a home before they sell, it’s important to plan to be in one place for a while before moving. At the very least, you should be expecting to own and live in your home for at least 2 years. If you move before then, or your home is not your primary residence, there could be negative tax consequences for you when you sell.
Beyond taxes, selling too soon means you’ve spent money to get the home loan that you aren’t likely to recoup. All of the loan fees and closing costs come out of your pocket, and it’s not worth the cost if you aren’t going to stay in the loan for very long. You need to be in the home long enough to pay down some principal on the home loan and see some appreciation in the home’s value. The amount of time you’d need to stay varies by location, but generally, it will be about 5 years before you’ll be ready to sell your home and actually come out ahead financially.
If you do think that you might need to move sooner than 5 years, work to pay extra toward your mortgage if you can. The more principal you pay down the better off you’ll be when you have to sell.
Sometimes circumstances change and you have to move when you didn’t intend to. In these cases, it might be a better idea to retain ownership of the home and rent it out rather than sell it. As long as you lived in it for 2 of the past 5 years when you sell, you can still get favorable tax treatment on any gains you’ve made.
3. Don’t wait for values to drop
Yes, rising interest rates may have a softening effect on home values, but there is a shortage of properties, and new construction hasn’t kept up with demand. That means houses will still sell, and fairly quickly. Sellers won’t feel tremendous pressure to lower their asking prices until the housing supply rises, and that’s not something that will happen overnight.
Generally, we don’t want to see homebuyers focusing on short-term property value calculations. Yes, property values are important, and one has to be careful not to over-pay for a home, but we want people to look at homeownership as a long-term aspect of their lives. You buy a home to have a roof over your head, with the goal of paying it off before retirement. Then you will be able to live more comfortably as you transition to a fixed income, and you’ll have access to products like Reverse Mortgages if you need them.
If you’re thinking appropriately long-term when buying a home, fluctuations in home values shouldn’t be a huge problem for you. But if you buy a house as a short-term investment, then you’re taking a risk that you’ll lose big if the market conditions change.
4. Work with trusted professionals
Your realtor will have a better sense of the conditions in your local market than any publication. Nationwide trends are informative, but you need to know what’s going on in the area where you intend to buy. So get help from a real estate agent with experience in the area and you’ll have an inside track on what the current market is really like.
Besides your realtor, your mortgage broker can be someone with whom you have a trusted relationship. Compare multiple lenders, and talk to the financial institutions you already do business with. Comparison shopping is important, compare mortgage offers from several different lenders. It’s the only way to be certain you’re getting the best price.
And remember there is non-profit housing counseling available to answer any questions you have about the home buying process. We especially urge new home buyers to take a home buyer education class early in the process, instead of waiting until after they’ve found the home they want to buy.
5. Be ready to compromise, but stick to your budget
You won’t have the luxury of taking a lot of time to decide in the current market. You’ll have to make up your mind quickly, and be ready to make an offer on a property that doesn’t check ever box on your wish list.
But one area where you shouldn’t compromise is in your budget. There’s never a good time to over-extend yourself to get into homeownership; you need to have your finances organized so you can maintain and afford the home after you’ve bought it. So while you do need to move quickly and bid competitively when you find a home you want to buy, you shouldn’t let yourself go over-budget. If you really don’t have enough money to buy the kind of house you want, you should think about spending some more time saving up a larger down payment, or adjust your expectations and look at a home you can comfortably afford.
This is definitely a tough line to walk—how do you make sure you’re the buyer who wins without offering more money than you can afford? One thing to talk to your real estate agent about is contingencies. If you are flexible and don’t demand a lot of extra work from the seller, you might get the home even if you aren’t making the highest bid.
These days, most first-time home buyers want everything to be new and in perfect working order, so they will push for lots of repairs and fixes based on the home inspection. If you are handy enough to do most of the repairs yourself, you can become a more attractive buyer by not forcing the seller to hire a contractor before closing the deal. Some sellers will give you a credit (reduced price) based on the home inspection for you to make the repairs on your own.
Give me a call today if you want more information regarding today's market or buying a home. Ijeoma Ezeanya, Realtor, DC & MD