Raleigh Home Buying Tips for 2022Raleigh home buying tips for 2022 come just in time when the market’s competitiveness can seem impossible. There is no denying that the pandemic has been a trend accelerator. Buying a home during the covid market has been the best of times with the lowest mortgage rates in history during 2020 and part of 2021. Paradoxically, it has also been the worst of times with the skyrocketing of home prices. According to the National Association of Realtors, as we ended 2021,the United States was short between 5/5 million and 6/8 million housing units. That includes single-family detached houses, townhouses, condos and rentals of all stripes and price points. With the Federal Reserve’s recent announcement that it will raise the federal funds rate three times this year, that means mortgage interest rates are likely to rise above the current historic lows. How this affects today’s home buyer: The inventory shortage surely will continue and the homes will be even less affordable than they are now. What can you do if home ownership is part of your American Dream? Consider these tips:
1. Know what you can affordWe’ve all done it. Viewing beautiful dream homes for sale online. The potential problem with this strategy is that it shapes what you want in a home. You vividly imagine yourself sitting on a beautiful plush couch in front of a blazing fireplace with your granite topped kitchen island in the background. On the surface, there is nothing inherently wrong with this picturesque vision, other than the fact that this may be out of your price range. It’s more important than ever with interest rates likely to rise this year, to know precisely what your budget will allow you to spend on the house of your dreams. Start with the four key components of affordability: Knowing how much you have saved for a down payment, how much your household earns, how much debt you carry, and your credit score are all key factors when it comes to understanding how much you can afford. Your credit score will directly affect the interest rate on the loan, which has a multiplier effect on how much you can borrow. Your debt service (how much you pay each month) will be subtracted from the total amount you can spend on your mortgage, taxes and homeowners insurance. Once you have these four components of affordability in clear view, it’s time to get preapproved for your loan.
2. Get preapproved for your mortgageOnce your lender agrees in writing to fund your loan and the home you choose appraised at value, you are PRE-APPROVED ! Pre Approval allows you to know exactly how much mortgage you can carry. The lender will take into account your debt payments, income and credit score. Once you have this number, you’ll add the amount you have available for a down payment to come up with the approximate purchase price. You will also need to set aside the few months of cash reserves the lender will require. A popular misconception is that a preapproval letter from a lender is the same thing as getting prequalified for your loan. A true preapproval letter means a lender has reviewed your credit, undertaken a review of your file and decided it will indeed fund your loan. A prequalification letter is when a lender informs you that, based on the unverified information the lender has from you, the lender believes you are qualified for a specified loan amount. Some lenders will give you a preapproval letter, but it includes so many qualifications that it really doesn’t amount to a true preapproval.
3. Decide what trade-offs you’re willing to makeUnderstand that you won’t be able to afford everything on your dream list. It’s a good idea to do a little reality check here and make two lists: everything you want in a home and everything you can’t live without. The simple exercise of building these two lists will help you understand what trade-offs you’re willing to make to get the things that are really important to you. Thinking through these lists carefully is critical because each choice and the prioritization you afford it, has real consequences.
4. Explore other ways to buy your first piece of real estateThere are creative options if at the end of the day, you find that you cannot afford home ownership.
- Consider buying a two- or three-family unit property, where you live in one unit and rent out the others.
- Buy with a partner or friend being sure to sign a partnership agreement if you’re unmarried.
- Build a multigenerational household to leverage additional income which has become another growing trend.
- Buy an investment property while you rent to others with the idea that you have the option to live in at some point.
- Or buy a home in a vacation area that you enjoy. Remote work has certainly grown in popularity as a result of the pandemic.