If you and your family have been struggling to find a home to buy or you're not sure if now's a good time to take the leap, you're not alone. The U.S. real estate market is the hottest we've seen in a long time, but with it comes potential challenges for buyers.
A recent market analysis by Freddie Mac, a mortgage-finance company, showed the U.S. housing market is 3.8 million single-family homes short of what is needed to meet US demand. Entry-level "starter" homes are among the least supplied, making it more expensive for first-time homebuyers, like millennials and now Gen Zers, to enter the market. The lack of housing inventory and high demand is known as a "seller's market."
On the flip side, mortgage rates are the lowest we've seen in years, with the average of a 30-year fixed-rate mortgage at about 3%. This is good news for buyers because they won't pay as much interest long-term and usually have a lower monthly mortgage payment.
Parents thinking about buying a home in the next year or two should prepare for the road ahead. Here are some tips to keep in mind.
Understand your "why"
With the market competition, it's important to ask yourself why you're interested in buying a house and determine if it's a "need" or a "want." Are you relocating for a job? Do you need more space for your growing family? Do you want to settle down and find your forever home?
If you have an immediate need to buy a home, preparation is the key to your success. The competition among buyers is fierce, but it's not impossible. Leveraging an experienced real estate professional can help you navigate the buying process and consider all your options.
If you're in the market to purchase a home but have some wiggle room in your move-in date, you're in a great place to consider buying a new-build home. With new construction, you can design to your family's taste and needs instead of buying a home with someone else's style in place. Since they are move-in ready, new homes are a great option for busy families who lack the time and additional budget to renovate or take on DIY projects.
Also, with more flexibility in your moving time, you'll have time to research market conditions, housing types, design styles and everything else that goes into purchasing and living in your new home.
Know how you stack up
In today's hot seller's market, buyers should understand how they stack up financially against lender qualifications and other buyers. Whether you're saving for down the road, working on a budget, or ready to jump into buying a home, you can use a free online mortgage calculator such as Nerd Wallet or Zillow to help you determine what you can afford. Online tools allow you to calculate different down payment options and will give you an estimate of your monthly mortgage payment, taxes and any applicable insurance payments.
If you're ready to start your search, speak with a mortgage lender of your choice such as your bank or a broker. Professionals will determine what you can afford and what you're likely to be approved for based on your overall financial situation. They can also give you a pre-qualification or pre-approval letter, which specifies how much they are willing to lend you. The letters are not guaranteed loan offers, but will usually go through as long as your financial situation isn't negatively impacted before your actual mortgage application.
Getting pre-qualified is highly recommended, as it ensures sellers remain confident in your ability to follow through with the sale. For new homes, home builders often recommend using their preferred lenders which can help make the process more seamless.
Decide your down payment
"The traditional rule-of-thumb of putting a 20% down payment isn't required anymore in many cases. This differs across markets, but overall, homebuyers can apply for an FHA Loan through their mortgage lender, which allows buyers to put less money down — sometimes as little as 5% or less. The 'catch' is that buyers will need to pay private mortgage insurance (PMI) on the loan. There are other conventional mortgage loans or first-time homebuyer assistance programs you might qualify for, so ask your mortgage lender about these programs," said Robert Lane of Lane Mortgage, a bi-coastal licensed mortgage broker in both California and Virginia.
"The challenge with a lower down payment is that nowadays sellers are receiving multiple offers within days or even hours of listing their homes," Lane continued. "Some buyers are offering all-cash or 30-50% down payments. Because of the number of buyers vying for homes right now, you'll likely need to make an offer quickly and above the asking price."
It's not always all about the money, though. Personalized letters to homeowners are making a comeback and can be the deciding factor between offers. This may sound daunting, but your realtor will guide you through the process and give you advice on what to do.
Compare your options
There are many paths to homeownership and endless options of home types, square footage, layouts and amenities to name a few. It's important to do your research and compare the pros and cons of each. The most prominent housing among growing families are single-family homes, townhouses and duplexes.
Townhomes are a great option for first-time homebuyers because they are typically more affordable than single-family homes. The trade-off is they are usually smaller and require some shared spaces with your neighbors. However, a major perk is that the homeowners association (HOA) typically ensures that all the exterior and common area maintenance is done for you.
Single-family homes are the most popular choice among homebuyers because they offer the most flexibility in style, structure and size. They're found virtually everywhere and provide the most amount of privacy for homeowners. However, the current housing crunch impacts single-family homes the most.
Duplexes are another considerable option for those who don't mind sharing spaces with their neighbors. Split into two units with separate entrances, each homeowner has a private interior space but may share the exterior spaces like a courtyard or backyard. Usually, they are single-level dwellings, so there's a shared wall between the two residences. In some cases, they're stacked on top of each other similar to an apartment or condo.
Consider new-build homes
As a developer of master-planned communities, we recognize the current industry challenges that home builders are facing with labor, materials and land supply. For buyers who want new-build homes, the supply challenges mean longer construction times ranging from nine months to a year, higher home prices due to increased prices of materials and potentially having to wait for home sites to become available. That's why these are a great option for families who have a little more flexibility in their moving timeline.
If you're interested in buying a new-build home, research builders in your area to check out their floor plans, availability and communities. From there, we recommend contacting the builders and the communities you're interested in to see what their latest buying process is like. Some builders have VIP lists that you can ask to be put on while others have more recently shifted to an online offer process.
Despite the current challenges, new builds save buyers the headaches that come along with older homes like necessary upgrades, outdated appliances or aesthetic changes. "New-home construction is a great option because it allows buyers to personalize finishes, choose flex spaces that best meet their needs, as well as select from various builder upgrades," said Jennifer Cole, Senior Marketing Director at David Weekley Homes. "Another upside is buyers won't have to worry about maintenance issues or renovating the home for many years. Move-in ready homes are perfect for on-the-go busy families who have little extra time for DIY projects."
Envision what life looks like
The homebuying experience can be stressful, but it should also be exciting and fun. It's easy to get caught up in the bells and whistles of the home and to start imagining what furniture you'll buy or what color you'll paint the living room. However, it's also crucial to envision what your actual day-to-day life will look like.
Wherever you want to buy, spend some time scoping out the area. Browse the shops, restaurants and parks that you think your family will frequent. For those who don't want to travel due to COVID concerns, we recommend reading local going out guides or checking local newspapers for area events. You can also use the Google Maps street view feature to give yourself a virtual tour. Consider factors like proximity to your children's schools, how often you run errands and what amenities you'll use often or not at all.
Some communities, including Newland's Embrey Mill, offer prospects the opportunity to be "Resident for a Day" so they can tour model homes, meet the builders and use the amenities. It's a great way for potential buyers to get a feel for the neighborhood and see if it's a good fit.
Virtual visits are also a great option for those who want to view homes and communities online. Nearly two-thirds of buyers bought a home sight unseen in 2020, according to a Redfin survey. More and more real estate agents are offering video tours where they walk you through a property via video chat or Facetime. Many new home builders use digital 3D platforms that show you a step-by-step walkthrough of different layouts. It's also common for homeowners to hire a photographer to take high-quality images that are shared on home-finding sites.
Master-planned communities are an ideal choice for families who want to connect with their neighbors and enjoy plenty of activities close to home. These neighborhoods feature resort-style amenities like parks, playgrounds, pools, cafes, community gardens and more. Many residents take ownership of the community by forming clubs, organizing events and getting together in common areas.
"We've seen everything from organized Mommy & Me groups, gardening clubs and even adult Trike races. Instead of signing up for costly extracurricular activities they have to drive to, residents have many of these built-in," said Fred Garnes, Marketing Director at Embrey Mill.
Wherever you are in your homebuying journey, remember to do your homework, be prepared, get to know the area, and ultimately, decide if you're ready to make a purchase right now or play the long game.