The Dos and Don’ts of Buying Your First Home in 2022
Covid-19 has been a nightmare for all of us; our lives have been turned upside down, and we’ve learned that being disconnected from friends and family may have been nice for a few weeks, but now, it’s basically intolerable.
When it comes to buying a new home or building a custom home, Covid-19 has been a double-edged sword of good; lowest mortgage rates in history, and bad; home prices are skyrocketing.
According to the National Association of Realtors, we ended 2021 short between 5.5 and 6.8 million housing units. That includes single-family detached houses, townhouses, condos, and rentals of all price points.
What does all this mean for a first-time buyer in the new year? In 2022 there will still be a shortage of homes to buy, and they will be less affordable than they are now. So, what do you do? Here are some tips on buying a home in this new year.
Know What You Can Afford
In this covid world, we have been getting used to viewing homes for sale online or on the television. That’s fine, but the trouble here is, you start to envision yourself in a gorgeous house with fine leather furnishings, a gleaming kitchen with all the latest appliances and gadgets. The view outside your huge windows is the ocean and mountains in the distance. You’ve been fed a vision, but is that a reality?
Having dreams and knowing what you want is good; dream away. But, you need to stay in touch with reality and understand what you can afford. With interest rates soaring, what makes up your dream home will need to be carefully examined.
Now, more than ever, you will want to adhere to the four critical components of affordability;
- How much have you saved for a down payment.
- How much your household earns.
- What debt do you carry.
- Your credit score.
Your credit score impacts directly on the interest rate on a loan, and it has a multiplier effect on how much you can borrow. How much you pay each month, your debt service will be subtracted from the total amount you spend on your mortgage, taxes, and homeowners insurance.
Do not avoid these four components. Get them together and in order before moving on to the next step.
Get Preapproved for Your Mortgage
Getting preapproved is vital; when you do this, your lender agrees, in writing, to fund your loan. Getting preapproved also allows you to exactly how much mortgage you can carry. You’ll know this because a lender will consider your income, debt payments, and credit score.
Once you have this number, add the amount you have saved for a down payment, and there you go, the approximate purchase price. Do get preapproved.
Do not, however, mistake a preapproval letter from a lender for being prequalified for a loan. A proper pre-approval letter means the lender has reviewed your credit, reviewed your file, and has decided that it will fund your loan.
A prequalification letter is when a lender lets you know that, based on the unverified information the lender has from you, the lender believes you are qualified for a specific loan amount.
Some lenders will give you a preapproval letter, but it will contain so many qualifications that it doesn’t really amount to a true pre-approval.
What Are You Willing to Compromise On
With the limited availability of houses continuing in the new year and the rise of home prices, you will not be able to get everything you want in a new home, even if you custom build and want to stay within a realistic budget.
Before you set out looking for homes or talking to builders, you want to make two lists. One list should be everything you want in a home, go crazy, dream big on this list. The second list is a reality check, and it should be only the things you just cannot live without.
Having these two lists lets you know ahead of time what you will compromise on to get the most of what you want. Know this before you go looking so that your dreams don’t exceed the reality of your loan and budget.
Do not just up and start looking for houses or talking to builders without this reality check to keep you on budget and grounded.
Explore Other Buying Options
If you’re faced with the fact that, as a first-time buyer in this insane housing market, you may not be able to buy a single-family house with all you need, try other avenues in a place that you want. Explore these options:
- Think about buying a two or three-family unit, living in one, and renting out the others.
- Buy a place with a partner, friend, or family member.
- But an investment property while you rent to others, and move into it later.
- Buy a place in a vacation spot you frequent; remote work opens up more options.
These may be some ideas to think about as you build up to buying that dream home that you may just not be able to afford right now.
Don’t Take Risks with Your Credit.
If you’re applying for a home loan, one factor that lenders look at is reliability. Three to six months before you apply for a loan, don’t move your money around or make any big-ticket purchases. Don’t open any new credit cards or amass any kind of debt. The cleaner your paper trail, the better chance of getting a good loan that will help you compete for the right home in this market.
Leave Your Emotions at Home
Do not buy a house with your emotions, especially in the current market; instead, trust your instincts. Emotions will help you fall in love with a home and thus, lead you to make some questionable financial decisions. Your instincts will tell you when you’re getting a good house and a good value. Emotions will cloud your head with images of puppies and kids in the backyard. All while ignoring the crime rate of the neighborhood and the fact that the pool in the side yard is actually a sinkhole.
Any money management professional will tell you never make an investment driven by emotion. Buying a home is an investment. Stay calm, ask questions, be wise, make the best deal possible.
Bigger Isn’t Always Best
Remember, don’t buy the biggest, best house on the block for first-time buyers. A large house appeals to a relatively small market. Ask yourself how much room you genuinely need. If you buy an enormous house, think about how that will affect your resale chances.
Your home’s resale value will be measured against the homes around it. It will only go up in value as much as the houses surrounding it. If you pay $450,000 for your house and your neighbor pays $230,000, your appreciation is limited. In some cases, buying the worst house on the block makes sense because, per square foot, the worst place always trades better than the biggest house.
Don’t Forget About Sleep Costs
When you’re buying a new home, think about the mortgage payment; however, you want to consider sleeper costs if you’re putting a budget together for your purchase.
Sleeper costs may include property tax, utilities, and home association dues. You’ll also want to budget for repairs and be prepared for property taxes to rise. Budget for sleeper costs, or you could lose your home.
It’s best to stay within the boundaries of what you can honestly afford in this Utah housing market and get that house now before it disappears. Again, being pre-approved will help you in this decision.
Building a Home
A great option, especially in this market, is to build a semi-custom home. Personalized details, good neighborhoods, well built, with good resale values make this an excellent option to buying a pre-owned home.
If you decide to go this route, your first step should be to talk to the folks at Revere Homes. They have decades of home building experience, a deep knowledge of the Utah housing market, and trusted financial people.
If you cannot find the perfect home for sale or want something more unique and personal, a good tip for buying a house in Utah would be to build one through Revere Homes. They can help you in this crazy housing market to get more of what you want without going over your budget.
The bottom line here is 2022 is not going to be any easier for home buyers than the previous year; however, if you do your homework, make your lists and talk to Revere Homes, a new home can be more than a someday dream in 2022.