With the real estate market constantly shifting and the recent mortgage interest rate drop, buyers are wondering whether they should wait for the perfect moment or dive in now. There is no clear-cut answer as this depends on your individual situation, financial readiness, and the type of buyer you are. Whether you’re a homeowner looking to buy a new home, a seasoned buyer who doesn’t need to sell, or a first-time homebuyer, here’s what you need to know about navigating the current market.
Sellers Need Proceeds for Their Next Purchase
If you currently own a home and need to sell before buying your next one, you’re not alone. As a matter of fact, I’m working with a client now who is in this situation. This is a balancing act of sorts. Many sellers depend on the proceeds from their current home sale to fund their next purchase. This requires a solid strategy around listing your house for sale and understanding the timing of the market as well as the current trends. Do you list your house first and wait to get an offer before going out to see houses? Do you try to carry costs for two properties at one time? These are some of the questions you may be asking yourself.
While this can make the process more complex, there are some best practices for navigating this process as well as some financing options to bridge the gap and give you more flexibility. Consider these options:
Bridge Loans
This is a short-term loan that allows you to use your current home’s equity as a down payment on your new home before selling. This financing can be a lifesaver, but it often comes with higher interest rates than your normal loan products, so you’ll want to weigh the pros and cons and evaluate all the terms.
Home Equity Line of Credit (HELOC)
If you have significant equity in your home, you might qualify for a HELOC, which gives you access to a line of credit that you can use for your next down payment. This is considered another lien on your property when it is eventually time to sell that property.
Rent Back
At the height of COVID when multiple offers going way over asking price was the norm, we saw buyers giving sellers free rent backs. You don't have to provide a free rent back - you can either charge a daily rate, the cost of your mortgage or another fixed amount. Also known as a post-settlement occupancy agreement, the seller can stay in the house after settlement and becomes a tenant. The buyer in turn becomes the landlord. There are limits on how long a rent-back can be based on your loan type. Common rent backs range from 30 to 90 days to allow a seller time to find their next home.
Buyers Who Don’t Need to Sell First
If you’re in a position where you don’t need to sell your existing property before buying, you have a significant advantage in today’s market. This flexibility allows you to make non-contingent offers, which are more attractive to sellers. You can also take your time finding the right property without the pressure of having to sync up closing dates. However, even if you’re in this ideal position, it’s still wise to stay up to date on market trends and have your finances lined up.
First-Time Buyers
For first-time buyers, timing can be everything. Rising interest rates and higher home prices can make entering the market feel daunting, but there are programs designed to help ease the burden. It’s important to understand some of your financing options as outlined below:
FHA Loans: Backed by the Federal Housing Administration, FHA loans have lower down payment requirements and more lenient credit score criteria, making them a popular choice for first-time buyers. They are also good for buyers who may have less assets to tap into but have more liquidity on a monthly basis.
VA Loans: If you’re a veteran or active-duty service member, a VA loan offers zero down payment and no private mortgage insurance (PMI), helping you save thousands over the life of your loan. There are different qualifications within the VA loan based on your eligibility.
Conventional Loans: Unlike the first two, these are not federally backed loans. These loans conform to Fannie Mae and Freddie Mac guidelines though. The minimum down payment is 5% but many folks feel that putting 20% or more down is advantageous as it removes the PMI that can tag on additional money to the mortgage payment each month.
First-Time Homebuyer Programs: Many states and local governments offer grants, low-interest loans, or down payment assistance programs.
Additional Programs: First responders, teachers and other professions may qualify for programs geared specifically toward them.
There are a lot of options to choose from. It’s best to talk with a mortgage loan officer who can go over the different types of loans, programs and any applicable grants before you start looking to buy. I’m happy to connect you with my trust lender partners.
Ultimately, whether now is the right time to buy depends on your financial situation and goals. It’s essential to have a solid plan—especially if you need to sell your current home before buying the next. For first-time buyers, explore all available resources and consider speaking with a financial advisor to get a clearer picture of what’s feasible.
The real estate market will continue to fluctuate, but your preparedness and financial stability will have the biggest impact on your decision. If you’re unsure, let’s schedule a meeting to see if buying a house is in your near future.
Posted by Zach Lipson on
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