As the leaves start to fall and the air gets autumn-crisp, the housing market cools down. But if you’re ready to buy your first home, there may be no hotter time to start the search.
Trulia, an online real estate resource for homebuyers and renters, recently released a report concluding that October is the best month for starter-level home-hunting. The organization found that starter-home supply peaks in October and rises 7 percent in the fall months, compared with the spring. That results in home prices that are 4.8 percent and 3.1 percent lower
in the winter and spring, respectively, than in the summer, the busiest home-buying season.
The Trulia report aligns with an analysis released recently by ATTOM Data Solutions, a real estate database. ATTOM reported that home buyers get the best deals in February, when the median home price is 6.1 percent less than the rest of the year, on average. These findings were based on public home-selling data from 2000 to 2016.
Buying a home could be a long process. If you are going to seal the deal in February, you need to be making offers in December or January, which means you should start looking as early as October or November, said Daren Blomquist, ATTOM’s senior vice president.
How the fall housing market aids first-time buyers
The fall house-hunting guidance holds particularly true for first-time buyers, many of whom tend to be young professionals without children, experts say.
“They are not as tied to the school calendar,” said George Ratiu, managing director of quantitative and commercial research of the National Association of Realtors. Conventional wisdom says the fall season is the best time for first-time buyers to look for houses because home prices are likely to drop as more houses come on the market and families with children have either moved or stopped looking.
People searching for starter homes also enjoy more flexibility than existing homeowners looking to move.
“The catch-22 is that if it’s a good time to buy in the fall, it’s a bad time to sell,” Blomquist said. “So it’s kind of a wash for move-up buyers. Whereas first-time home buyers don’t have to worry about the selling of the equation.”
New buyers still face many obstacles
However, it can still be a challenging market for first-time home buyers, and it’s getting tougher, experts say.
Supply and demand
Nationally, housing supply has been shrinking over the past few years. It has tightened even more in 2017 than in previous years. Existing homes available for sale at the end of August fell 2.1 percent to 1.88 million and were down 6.5 percent from last August, according to the NAR.
It would take 4.2 months for the houses on the market to be sold at the current pace, down from 4.5 months a year ago. (Six months is considered a balanced buyer-seller market.)
But the demand for housing has been growing as a result of an improving economy and increasing job opportunities.
“Prices had nowhere to go but up,” Ratiu said. Homebuyers “have more money, but there are not enough homes on the market, and the price of homes has outpaced their income, which makes it hard for them buy.”
Nationally, the August median sales price of existing homes, which starter buyers tend to purchase, was $253,500, 5.6 higher percent than last August, according to the Realtors’ association. Meanwhile, wage growth remained fairly stagnant, at around 2.5 percent, the Bureau of Labor Statistics reported.
The NAR on Tuesday reported that Pending Home Sales, a future-looking indicator, fell 2.6 percent in August compared with last year — its lowest reading since January 2016.
“When I see pending sales declining, it’s likely sales for the next month will be down,” Ratiu said.
Ratiu said that much of the declining sales was the result of the housing shortage, which indicates that people looking to buy may not be able to find a house. But if they can buy, fall months are still a good time to snag a suitable home, Ritiu said, because the slow sales season gives starter home buyers that edge in a tough seller’s market.
“If first-time homebuyers are competing with buyers who have bigger down payments, which typically you would have with a move-up buyer, they are going to lose out more often than not in that situation,” Blomquist said. “So if they are willing to buy when other buyers are dormant or in hibernation, then they could get an edge and face less competition.”
Tougher lending standards
Tougher lending standards since the financial crisis have have hit hard among first-time buyers, who made up 31 percent of all homebuyers in August, the NAR reported. The median down payment percentage in the second quarter of 2017 rose to its highest in nearly three years, at 7.3 percent, up 1.4 percentage points from last year’s 5.9 percent, according to ATTOM.
This means if you buy a home for $200,000, you would have to put down $14,600 today versus last year’s $11,800.
To put that in perspective, at the peak of the last housing boom in 2006, before the financial crisis, the median down payment percentage for houses sold nationwide was 2.1 percent, Blomquist said.
Spring will very soon have sprung — which means “For Sale” signs will be in full bloom — and if you’re hoping to buy a home this year, get ready for a competitive market. Thanks to the Federal Reserve’s continuing rate hike teases and some economic improvements, you can expect to run into plenty of other people while looking at prospective properties.
Fortunately, there are steps you can take now to help make sure your offer on a new home is as competitive as this year’s hot market. Here are 50 ways soon-to-be house hunters can get ready for the homebuying season.
1. Make a Wish List
“You’ll waste a lot of time if you don’t know what you want,” Brian Davis, director of education for Spark Rental, says. “Know how many bedrooms you need, which amenities are must-have, and which are desired but not mandatory. Most of all, know your price range and stick to it.”
2. Consult Your Co-Buyer
If you’re purchasing the home with a loved one “make sure you both are on the same page,” Patrick Gobin, associate broker with District Realty Team at New York Living Solutions, says. “Conflicting opinions makes the process very difficult. Example: One person wants a ranch and one person wants a two-story house.”
3. Determine Your Debt-to-Income Ratio (DTI)
Here’s how. Remember, a DTI (how much you make vs. how much debt you’re already paying off each month) over 50% or more will severely limit your ability to borrow.
4. Check Your Credit Score
Because it’s going to play a major role in whether you can actually get a mortgage and what rate you’ll pay. You can view two of your credit scores, updated every 14 days, for free on Credit.com. (P.S. If you have a co-buyer who’ll be on the mortgage, they’ll want to check their credit, too.)
5. Pull Your Credit Reports
There may be a few things you can do to clean up your credit before you apply for a mortgage. Plus, you’ll want to make sure there aren’t any errors weighing your scores down. Speaking of which …
A 20% down payment is considered ideal, since any amount below that will have you paying for private mortgage insurance (PMI). There are programs out there that help homeowners get a mortgage with much less down, which brings us to …
10. Know Your Loan Programs
Most homebuyers have two options: a conventional home loan bought and sold by Fannie Mae and Freddie Mac or an FHA loan insured by the Federal Housing Administration. Veterans can also consider VA loans, which notably feature a 0% down payment.
11. Research Rates
Your interest rate is going to play a big role in determining your monthly payment, so be sure you know what current rate ranges are being offered — and what you’re likely to qualify for, based on your credit.
12. Prepare for Property Taxes
Yup, you’ll have to pay the government each year for your land — and you’ll want to get an estimate of how much money you’re likely to owe, since it will seriously affect your housing budget. You can find a full explainer on property taxes here.
13. Account for Closing Costs
They generally run between 3% and 5% of your purchase price, depending on location and other factors.
14. Feed Your Emergency Fund
Because buying a home is going to put a serious drain on your bank accounts and you don’t want to be down to your last dollar. Experts generally recommend you have at least six to 12 months of income as backup reserves.
15. Figure Out How Much Home You Can Afford
This will be affected by your DTI, credit scores, prospective interest rate, down payment, property taxes and whether you’ll be paying for private mortgage insurance, among other things. (More tips here for how to get a rough estimate on how much home you can comfortably buy.)
16. File Your Taxes
Your mortgage lender is going to ask for at least two years’ worth of tax returns, so it’s a good idea to shore up with Uncle Sam — and print out or download your returns from two prior years.
17. Pick a Neighborhood
“Location is one of the most important factors when finding a home,” David Lewis, owner of full-service real estate agency The Lewis Group, says. “It’s also the only one that you can’t change. Knowing what areas you’d like to live in prepares you to make the jump when it is time to move forward with an offer.”
18. Study the Market …
You’ll want to know what you’re in for: What’s the median home price in the area you’re looking to live? Are you in a buyer’s or seller’s market? Are solid homes going for more or less than list price?
19. … & the Process
Oh, if only the homebuying process were so simple. Unfortunately, there are a whole lot of steps between finding a home and closing on it. Get familiar with all the major steps: pre-approval, home inspection, home appraisal, title search, closing, etc.
20. Hit the Open Houses
A little window-shopping can do a house hunter good. Visit some open houses ahead of your formal search to get an idea of list prices in your preferred area(s) — and whether your list of “wants” is realistic with your budget.
21. Get a Pair of Flip-Flops…
…or some other kind of easily removed shoes, because most homeowners or listing agents are going to ask you to leave your kicks at the front door.
22. Search for Schools
“If you have kids, carefully examine the school choices and districts available to you,” William Mayben, CEO of consulting firm Wm Mayben and Associates and former division president for National Public Builders, says. There are sites online that can help you pinpoint school ratings, crime rates, etc.
23. Calculate Your Potential Commute
The length of your commute can seriously impact the enjoyment of your home. How much time are you realistically willing to spend in the car, on the bus or on a train?
24. Find a Realtor
You don’t have to use one, but there are certainly benefits to enlisting the services of a reputable Realtor or agent. Case in point: They can give you insights into the current market and walk you through the homebuying process. Bonus: The seller pays their commission.
25. Consider a Specialist
“If buyers are looking for ranches in the Stoney Gardens neighborhood, they should find a realtor who specializes in (drum roll please…) ranches in the Stoney Gardens neighborhood,” Davis says. “The best Realtors know a specific segment of the market inside and out, and can help borrowers who want that specific market segment.”
26. Vet Mortgage Lenders
Similarly, you’ll want to research reputable mortgage lenders or brokers in your area to determine who you’re comfortable doing business with.
27. Request Recommendations
For Realtors, mortgage lenders and other members of the homebuying team you’ll need to onboard.
28. Get Pre-Approved
Once your credit is as good as it’s going to get and you’re ready to start your search, be sure toget pre-approved for a mortgage. That’ll signal to a seller and/or Realtor you’re a serious buyer worthy of their consideration.
Just be sure to do so in a 30- to 45-day window, since that’s how long most credit scoring models will group applications for like-financing (in this case, mortgages) as one inquiry.
30. Ready Your Bank Statements
Because your lender is going to ask for them. Note: You’ll probably be expected to turn over brokerage or retirement account statements for at least the last two or three months as well.
31. Request Your Pay Stubs
Most of us direct deposit, but your lender is going to ask for at least two months worth of pay stubs. So, if you’ve been setting and forgetting, now’s the time to track down where to access your paycheck details.
32. Think About What Other Paperwork You’ll Need
Getting some gift money? You’ll have to document it.Just got a new job? Be prepared to turn over more employment verification. Ask your mortgage lender for a full list of all the major paperwork needed to get your loan fully approved.
33. Find an Attorney …
Some states mandate a real estate attorney prepare your purchase contract — and, even if yours doesn’t, it can be a good idea to bring one on board. Be sure to research reputable real estate attorneys in your area and get an idea of what they’ll charge you.
34. … & an Inspector
Yes, the bank is going to do the appraisal, but the buyer is responsible for the home inspection. You’ll need to find a certified, licensed professional and cover their bill.
35. Learn What to Look for …
It’s not just about your wants and needs. When viewing a potential home, you’ll want to, among other things, check out the furnace, hot water heater, roof, plumbing, windows, insulation, HVAC systems, basement, closets and that old shed all the way at the other end of the yard.
36. … & What to Ask
Per our partner Realtor.com, you’ll want to ask about the home’s sales history, any renovations the seller has done, monthly maintenance and utility costs and other things.
37. Brush Up on Your (Offer) Letter Writing Skills …
Because in some markets you’ll want to write one to the seller when you make your bid. And, yes, while price is most important, a solid offer letter can be the difference between getting or losing out on your dream home. Good offer letters are generally personal, specific and positive.
38 … & Your Negotiation Tactics
They’ll certainly come in handy.
39. Keep Those Credit Cards on Ice …
Big changes to your debt levels can damage your DTI and your credit score — and your lender will check up on those items before closing. That’s why you’ll want to be extra careful about what you’re putting on your plastic.
40. … & Cool the Credit Inquiries
Those can also ding your score and jeopardize your mortgage. So, sure, that Home Depot credit card could come in handy — but it’s a good idea to wait at least until after you close to take the retailer up on their offer (and then be sure your finances can handle it).
41. Determine Your DIY IQ
“Assess your abilities as a handyman or handywoman,” Gobin says. “Buying a fixer-upper can be very expensive if you can’t even change a light bulb.”
42. Get a Work Estimate
If you are looking at a fixer-upper or find a home that has all your major needs, minus one (say it’s missing hardwood floors), research what a particular project is likely to cost you. That’ll help you establish the true cost of the prospective home.
43. Think About Resale Value
Even if you’re looking for your forever home, because, well, life happens. That’s why it’s good to at least consider what you’d have to sell the home for in order to recoup what you’re offering to pay. (Remember, too, when you go to sell, you’ll be the one paying a Realtor’s commission.)
44. Scout it All Out
“Visit your target house during different times of day,” Mayben says. “Pay attention to neighbors’ dogs, traffic, parking, the neighborhood feel and culture. Where are parks, shopping, bike or hike trails, coffee shops, etc.?” Asking neighbors about noise and other possible pain points can also pay off.
45. Map Out Your Move …
Research moving companies — and the costs associated with them — to assess whether your cash reserves are adequate.
46. … But Hold Off on the Home Furnishings
Especially if you’re planning to put those on a credit card. The last thing you want is those big balances throwing a monkey wrench into your credit — and your closing date.
47. Start Staging Your Current Home
“If you have to sell in order to buy, start working on that end of the deal,” Mayben says. “Maximizing the sell price maximizes the replacement price. Declutter your home for sale. Sell, donate, or otherwise get rid of things you don’t need. Develop a clear sense of your house value.”
48. Get Ready to Compromise …
“Keep in mind the perfect home doesn’t exist unless you build it yourself,” Gobin says.
49. … & Be Disappointed
Because you may not get the first, second or even third home you bid on. “Multiple offers are very common these days,” Dorothy Mazeau, sales representative at Royal LePage RCR Realty, says. “You may be competing with one, two, or even twenty other buyers. Houses frequently sell for thousands over their list price.”
50. Stay the Course
Still, don’t get discouraged and/or recklessly ramp up your budget. “Know what you can afford and stick to it,” Mazeau says.