With mortgage interest rates sitting at a 40 year historical low. It’s no wonder that you’re thinking about buying a home this year. Lower mortgage rates mean less interest applied to your monthly payment, allowing you to afford more out of the marketplace. But with lower interest rates comes more competition in the buying pool. Have you ever seen the realtor.com “not yous” commercials with Elizabeth Banks? Well, the buying pool is currently like a stampede of buyers- barreling down behind you all hunting after the same property. So how can you compete and be successful in a competitive marketplace today? We’re talking about the 3 keys to buying a home in 2021 and how you can find success.
#1 Construct a Team for Success
The first key to buying a home in 2021 is to construct a team for success. Stop behaving like a looker and start acting like a buyer. Well, what do I mean by that? Well, buyers need a team of professionals around them to support them and guide them through the home buying process; while lookers meander in and out of the marketplace and go round and round in circles. Buyers see a property hit the market and are fully equipped with the knowledge, tools and documents necessary to make an offer; while lookers stop by open houses without knowing if they can even secure financing.
So, who do you need on your team?
Well, to start off, you’re going to need a buyer’s agent, a loan officer and an attorney.
In New Jersey, real estate agents can represent both sellers and buyers separately, or even both parties at the same time- as long as we notify you. Agents carry the responsibility of fiduciary, which means that we have a duty to preserve good faith and trust and put your needs ahead of our own. In other words, we’re legally and ethically bound to act in your best interest, not ours. And in New Jersey, agent commissions are most commonly paid for by the seller. So hiring a buyer’s agent to represent you is free!
Together, you and I will sit down and we’ll create a plan and path for success in the home buying process- guiding you through the steps of the transaction and being your advocate to get you to the closing table. We’ll also set you up in the local MLS, which provides the most accurate information on listing availability and documentation about the properties such as the seller’s disclosure.
After you’ve selected a REALTOR® and discussed your home preferences, you’ll then speak to a lender. Together with the loan officer, you’ll review your financials to determine both your readiness and ability to obtain funding. After this review, the loan officer prepares a pre-approval letter, which is a voucher of sorts for us to use when we find a home that you love and make an offer. The preapproval letter includes the type of loan you’ll receive, the amount your qualified to purchase for, and the expiration date of the lenders promise. A pre-approval letter isn’t a guarantee that you’ll receive funding, but rather a promise to provide funding should you meet all of the lenders mortgage requirements during their application process.
Lastly, you’ll want to go ahead and select an attorney to represent you.
Do you need an attorney?
Buying a home is one of the largest investments you can make in your lifetime. For a small fee, typically around a $1000, you can have someone protect your interests from a legal perspective. So why should you choose an attorney before you start house hunting? Well, once you find a home and your offer’s accepted, you only have 3 days in New Jersey to have an attorney review your contract and make any necessary changes to protect your interests. Many buyers find that having an attorney pre-selected makes the review process far less stressful.
#2 Have the Right Mindset
The second key to buying a home in 2021 is to have the right mindset. With the number of homes for sale significantly lower than in previous years, homes are selling in a matter of days, with multiple offers, and a sales price higher than originally listed. Gone are the days of offering below asking to try and haggle to get a few thousand dollars shaved off the sale price.
Right now, the deal is in the interest rate, not in the purchase price. And to be honest? That’s a far better deal long-term from a financial perspective.
Why is a lower interest rate is better than a lower sales price?
Let’s say you want to buy a home that’s listed for $350,000. You’re putting 20% down and taking a 30 year mortgage on the property. As of February 18th, 2021, Fannie Mae reported on their site that national mortgage interest rates are averaging at 2.81%. Based on these numbers, your monthly mortgage payment should be about $1,950 or so with $8,000 in taxes on the average and $1,500 a year in homeowners insurance. Over the course of 30 years, you’d pay the mortgage company about $135,000 in interest.
But let’s say that you decide to offer over the asking price to ensure that your offer is accepted. Instead, you decide to offer $365,000. If all other parameters of the loan stayed the same, your monthly payment would only increase about $50 a month. And the total interest paid to the mortgage company would only increase by $5,000 over the life of the loan. $50 a month doesn’t seem too bad for an increase, does it?
But I mentioned a few moments ago that the deal buyers are getting right now is in the interest rate and not in the purchase price. Let’s do the first deal again, where you purchase the house at $350,000. But this time we’re going to see what happens if the interest rate rose one whole percentage point. I’ll change the sale price back to 350 and this time I’m going to raise the interest rate to 3.81%. Not only does your payment go up $100 than if you had offered 365 at 2.81%, but the interest you’ll pay the mortgage company over the life of the loan goes up to over $190,000. That’s $50,000 more than if you purchase today at a slightly higher price.
So while you may be paying a premium for homes right now, low interest rates are more than counterbalancing that. Because of low inventory, you’ll want to keep these three words in mind during the search process.
You need to be dedicated, diligent and decisive.
Adopting these three words as a mindset is one of the biggest hurdles I see buyers facing in the marketplace, right now. For example, we send you 123 Main Street on Monday at 10:00 AM. You wait until Tuesday at 7:00 PM to open our email about the property. You Immediately fall in love but you wait until Thursday at 3:00 PM to contact us to schedule a showing for the weekend. In less than 72 hours, the home is most likely been seen by 20 to 30 buyers and has 8 to 10 offers on it. They often have already accepted an offer, are in attorney review and are no longer showing the property. 123 Main Street is gone and you’re frustrated with how fast it went and disappointed that you didn’t get to tour it. But being a dedicated, diligent and decisive buyer might’ve made the situation different.
Staying dedicated to the process means carving out time each morning to review the listings sent to you and carefully considering each one as to whether it’s a good fit for you in your market today. If you feel like it’s a good fit, you’re going to want to reach out to your agent and schedule a tour within 24 hours. We want you to be diligent, but patient in your home search. It’s a fine balance between being too specific in your preferences and finding nothing you like and being so desperate that you forego your real needs and settle on something you hate.
Staying focused on what you want and need in your next home will help you sort through the listings and be clear on which properties you want to see- but still allowing you to stay open to the possibilities outside of your original parameters. Believe it or not, oftentimes buyers find the home of their dreams in the most unexpected location.
Take Decisive Action
But taking decisive action is the most important step. In our current sellers market, you typically only have one chance to tour the home and make an offer. We’ll never push you. This is on your time and on your comfort level, but we’d hate for you to miss out on a home you love. It’s helpful if you bring any parties along on the tour that you’ll need present to help you make a decision- that could be a spouse, a partner, a friend, a parent, or a child. And if you’re ready to make an offer, we’ll discuss the best way to position your offer to be accepted and draw up the documents for signatures.
#3 Be Prepared for Setbacks
The third, and final, key to buying a home in 2021 is to be prepared for setbacks. With many buyers competing for the same property, there’s a chance your first, or even second offer, won’t be accepted. It’s disappointing for everyone including us. But if you put your strongest offer out there, take comfort in knowing it just wasn’t the right house for you. We’ve never had a buyer say at the closing table that they wish they had gotten the house that they lost.
Mentally preparing yourself for a possible setback before you start house hunting, not only makes the blow a little easier, but it also takes out some of the emotionality of the process. It keeps you focused on facts, numbers, and logistics- which ultimately helps you make a sound financial decision on any property that you consider purchasing.