SEATTLE, Oct. 22, 2020 /PRNewswire/ -- Home shoppers
wanting to buy right now might be reading headlines about the
housing market that are scaring them away -- low inventory, high
prices, homes selling at an extremely fast pace across all price
ranges. But near-record low mortgage rates are creating a huge
opportunity for buyers to get more for their money, and the freedom
to telecommute is opening up home shoppers to new, and potentially
more affordable, areas to live.
Sure, it's a sellers' market right now most everywhere -- with
such low inventory and high demand, the market feels even more
frantic than a spring home buying season -- but that doesn't mean
it's not a good time to buy your dream home. "Everybody wins in
this market," says Best of Zillow Premier Agent Laurie Reader of Laurie Finkelstein Reader Real
Estate in South Florida. "It's a
great time to be a seller because your home has less competition,
but buyers win thanks to near-record low interest rates that allow
them to get more home for their money."
Right now in the housing market, some of the biggest risks to
buyers are paying more than you can afford in a bidding war and
rushing into a home that is not a good fit. To help buyers avoid
these mistakes, Zillow senior economists Jeff Tucker and Cheryl
Young share their best advice to help potential homebuyers
confidently navigate a sellers market.
The Financing
A Zillow survey shows that1 for sellers who had at
least one offer fall through, more than one-in-five could pinpoint
issues with money, mortgage, or financing as the reason. Zillow
senior economist Cheryl Young
emphasizes, "In a tighter credit environment, it's important to
make sure your credit score is good. Evaluate your current credit
situation and make a game plan to clean up your credit score if
needed, prior to starting the pre-approval process." A better
credit score can mean a difference of tens of thousands of dollars
over the life of a mortgage, and you could discover it's better for
you to wait to buy until you can improve your score. Either way,
knowing your score a few months in advance and how it impacts your
mortgage rate is an important first step.
Shopping around for a mortgage2 can potentially mean
a difference of several hundred dollars a month. Make sure to talk
to different lenders to ensure you get the lowest possible rate,
and ask questions about the interest rate, down payment amount, and
estimated closing costs -- among others. Zillow has a network
of mortgage3 lenders to help streamline your search so
you can find the mortgage that is right for your unique situation.
Once you select a lender, pre-approval is the next step to make
your offer look more attractive.
Pre-approval means you are approved for full financing and
requires a more comprehensive finance and credit check, which
differs from pre-qualification. Pre-qualification often works well
for homebuyers who are unsure about their borrowing amount and need
to know how much they can afford, but in the competitive housing
market we're in now, pre-approval is the way to go. It allows you
to make a confident offer more quickly and helps you stand out from
buyers who might not be able to close as quickly.
Zillow survey4 data shows that 40% of buyers with a
mortgage and 52% of first-time homebuyers receive loans or gifts
from family and/or friends to help with the down payment. Having
that money transferred into your account well ahead of time will
allow it to be factored into your pre-approval. Waiting to receive
the gift after you make your purchase offer can delay the process
and ultimately impact the ability to purchase the home quickly.
As you determine how much you can afford, do not forget to
factor in enough to cover closing costs, or what you pay beyond the
down payment, and may include taxes, appraisal fees and homeowners
insurance -- among others. Maintenance costs alone reach above
$3,000 per year for a typical
homeowner. Preparing for these ahead of time can limit stress and
shock after your home purchase, especially if your offer was
right-at or over your budget. When shopping for a mortgage, this is
a good time to ask potential lenders what your estimated closing
costs will be.
Buying a home in a tight market might mean you made a few
sacrifices along the way, and may be moving into a home that needs
a little TLC. Young urges buyers to consider how much home
improvement projects may cost -- and how urgent those renovations
are -- and factor those into your budget, as well. While new
kitchen countertops can most likely wait, fixing a leaky roof can
not. If you spent all of your budget on the down payment, fixing up
the house might be stalled longer than expected.
The Shopping
The current housing market is highly competitive
-- inventory is at historic lows, 36.4% below last year's
levels and around a quarter of homes are selling above list price.
With this in mind, buyers need to prioritize exactly what they
want.
Apart from finding a home within your budget, it also needs to
fit your and your family's needs. In a tight market, it's highly
unlikely any buyer will find a home that checks all their boxes, so
outline what trade-offs you're willing to make ahead of time to
broaden your search. Make a list of your top criteria when
starting your home search and find an agent you trust to help find
the perfect fit.
The speed of home sales continue to accelerate, with homes
typically going under contract in about two weeks. With this in
mind, get a speed edge on your competition by using virtual or 3D
home tours first to narrow down your options, and take advantage of
self-tour options when available. With 12% of homebuyers
willing to purchase a home sight-unseen, these virtual tools can
help you make a decision more quickly and not miss out on the
perfect home while waiting for a showing.
Keep in mind that real estate is extremely local, and while it's
good to pay attention to national housing market trends, make sure
you understand what's happening where you are shopping. Each market
is different; something that works in one may not in another, and
finding a good agent with extensive market knowledge will be
valuable. On Zillow, buyers can be connected with a local Premier
Agent who will guide them through the homebuying process in their
area and help them select the right homes to tour. Additionally,
your agent is the best person to be up-front with about any
trade-offs you might have -- whether it's neighborhood or home
features -- and what you're willing to sacrifice.
The Bidding War
In today's market, it's very likely that buyers will end up in a
bidding war. Zillow senior economist Jeff
Tucker stresses the importance of using the knowledge you
gained as you prepared your finances to set a hard ceiling on what
you're willing to offer and avoid spending more than you can
afford.
An escalation clause can be extremely valuable in a competitive
market. This is language included in your pre-approval that ensures
your best offer is always in front of the seller. The downside to
an escalation clause is you might pay more than originally
intended. To avoid going over budget, shop for homes that are below
your maximum price point so your escalation offer stays within your
budget. This gives you wiggle room for a bidding war and will make
your top offer more attractive.
"If you have a maximum budget point, only look at homes listed
about five to ten percent below that price," explains Tucker. "With
more homes selling above list price this year, you might get outbid
every time if you're only putting an offer on homes already at your
maximum price. Use Zillow to look at recently sold homes in the
neighborhood to get an idea of how much financial flexibility to
give yourself."
This is also where your agent comes in. A local agent who knows
the market can be crucial to your home search in a competitive
environment, and can help you understand what makes a winning offer
in your area.
About Zillow
Zillow, the most visited real estate website in the U.S., is
building an on-demand real estate experience. Whether selling,
buying, renting or financing, customers can turn to Zillow's
businesses to find and get into their next home with speed,
certainty and ease.
In addition to for-sale and rental listings, Zillow Offers buys
and sells homes directly in dozens of markets across the country,
allowing sellers control over their timeline. Zillow Home Loans,
our affiliate lender, provides our customers with an easy option to
get pre-approved and secure financing for their next home
purchase.
Millions of people visit Zillow Group sites every month to start
their home search, and now they can rely on Zillow to help them
finish it — with the same confidence, ease and empowerment they've
come to expect from real estate's most trusted brand.
Zillow is owned and operated by Zillow Group, Inc. (NASDAQ:Z and
ZG).
1 Zillow Consumer Housing Trends Report, 2019
2 This research is from September 2019 and includes mortgage rate
information that may not reflect current available mortgage
rates.
3 The network of mortgage lenders is made available
by Zillow Group Marketplace, Inc. ("ZGMI"), a licensed mortgage
broker, with its main office located at 1301 Second Avenue, Floor
30, Suite 3000-A, Seattle, WA
98101. (206) 470-7000. NMLS #1303160. Current list of state
licenses and disclosures available here. ZGMI does not
recommend or endorse any lender.
4 Zillow Consumer Housing Trends Report, 2020
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SOURCE Zillow