How First Time Home Buyers Can Prepare for 2022?
The housing market is changing. We are now in the era of “the new normal,” an economy where Millennials are starting to buy homes for the first time, but have less money than their predecessors had at this age. And it's an economy that has seen home prices rise more dramatically than they ever have before.
So what can you do? The best thing you can do right now is getting ready so that when the time comes, your search isn’t rushed or haphazard. Here are some things you should know about how to prepare for buying a home in 2022:
1) Get yourself pre-approved and give yourself an edge over other home buyers.
Many home buyers choose to get a pre-approval after they've found the house. Rushing to get a letter before the offer review date. The letter can help you in two ways. First, it demonstrates you are serious about making an offer and second, it will make the bank's decision to give you a loan faster process. Also, it will let the seller know that you are serious about buying their house.
Most importantly the pre-approval letter will help you stand out from other home buyers.
2) Start getting as much information as you can before you start looking at homes.
Start learning about neighborhoods a few months before you start making offers. Drive around different neighborhoods so that you can see the different vibe and amenities in the area. For example, some neighborhoods might be more family-oriented while others might be more of a young hipster crowd.
Some neighborhoods might have more parks and green spaces, while others might have more restaurants and nightlife. It's important to know what you're looking for before you start your home search. That way, you can be sure to focus on neighborhoods that fit your lifestyle.
Go eat at the local restaurants and talk to the locals to get a feeling of the neighborhood. The locals are the ones with the best up-to-date information. They know all sorts of things about the neighborhood such as if the neighborhood is safe and clean.
3) Attend a really good home buyers class
A really good home buyers class will prepare you for the upcoming challenges that are happening in the market. For example, the market is very competitive for home buyers. The class should prepare you for the pre-approval process. They should guide you through the basics of how the credit score affects your mortgage rates. They should give you the strategies on how to get the best financing for your situation. The most important part of the class is to help buyers know how much home they can afford and what the closing costs will be and how to prepare for that.
I've included the link for homebuyer classes for Washington State and each city.
4) Know the basics of the loans available
There are many loan programs available for first-time homebuyers. These loan programs can vary in terms of the interest rate, the down payment amount, and the length of the loan. It is important to understand all of the different available loan programs and to select the one that best meets your needs.
One popular loan program for first-time homebuyers is the FHA loan. This loan program allows borrowers to make a down payment of as little as 3.5%, and it also has low closing costs. The FHA loan is a good option for borrowers who have a limited credit history or who have difficulty qualifying for a conventional mortgage.
A conventional mortgage will be better for someone who has more downpayment and a better credit score.
One of the main reasons conventional loans can be a smarter financial decision is because, unlike the FHA loan, your PMI disappears when you reach 78% loan-to-value or if you put 20% down.
FHA requires both upfront and annual mortgage insurance. (Remember, that's PMI and MIP) for all borrowers, regardless of the amount of down payment. These additional costs are what can make an FHA loan expensive over the loan term.
5) Understanding the contingencies before making the offer
The time to know the basic terms on inspection, financing, appraisal contingency is not right before you're making the offer. The contract may include 20-30 pages and you trying to consume all of this information write before you make the offer confusing.
The home inspection contingency is a period after you've signed the purchase and sale agreement and before escrow closes which allows you to rescind your contract if the home inspector uncovers problems with the property. Home inspectors usually do their inspections late in the day so that they can write up their reports later on.
A home financing contingency is a clause in a contract that allows the buyer to back out of the sale if they are unable to secure a loan. This contingency usually lasts for a certain amount of time, such as 21 days.
The main risk associated with this type of contingency is that the buyer may miss their window to get a loan and will be forced to forfeit their down payment.
An appraisal contingency is a clause in a purchase contract that states what happens to the offer if an appraisal comes back at a lower value than the price specified in the offer. The appraisal contingency can protect you from overpaying for a house. When an appraisal contingency is used, the buyer will have some options if the appraisal comes back lower than the list price. However, it can weaken your offer when competing with other home buyers. Therefore it's important to understand these tools early so you can make a more informed decision.
Borrowers who are looking to buy their first home in 2022 should take the time now to learn more about what they need to do. You can get started by understanding your credit score, all of the loan programs that are available for you, and then making sure you have contingencies in place before you make an offer on a property. The sooner you know these basics, the better equipped you'll be when it comes time for signing your purchase agreement!