It’s a tough market for buyers, but you can make it somewhat easier.
Buyers are facing a tough market for several reasons. Due to pandemic-related economic issues and the tragic collapse of the condo buildings in Surfside, Florida, new adjustments have been made to mortgage rules and regulations for condos nationwide. Additional due diligence is required to approve conventional loans on condos. Additionally, condo associations for buildings that were built 20 or more years ago and have deferred maintenance, inspection findings, or judicial findings are under increased scrutiny. Purchasing older condos may be more difficult and expensive.
Due to the expanded pool of second-home buyers, high-balance and vacation home mortgages will have an extra fee. For high-balance loans, borrowers will be charged between 0.25% and 1% of the loan amount. For second-home loans, borrowers will pay between 1.1% and 4%. This updated fee structure is meant to increase the funds available to Fannie Mae and Freddie Mac to help first-time buyers and low-income households. This comes at a time when record-high home appreciation and reduced purchasing power make it difficult for these groups.
"As mortgage interest rates increase, buyer affordability will decline."
Other changes include the fact that additional COVID-related paperwork is no longer required for self-employed borrowers. Two years of tax returns can be used instead. Additionally, loan applicants without a robust credit history can now use on-time rent payments to build their credit and get a better loan.
Even with an outstanding credit score, this seller’s market can be frustrating to navigate as a buyer. Sustained strong buyer demand, low inventory, record-high price appreciation, rising mortgage interest rates, and diminishing affordability have made purchasing a home more competitive than ever. To combat inflation, the Federal Open Market Committee is raising the federal funds rate, which will reduce demand for big-ticket items typically financed by debt. However, as mortgage interest rates increase, buyer affordability will decline, and with appreciation being as high as it is, this loss of buying power is felt hardest by first-time and lower-income buyers.
So what can you do to combat this? Keep your credit score clean and, ideally, increase it. Consider the on-time rent payment credit building programs. A higher credit score will always help you secure a better loan.
You should also try to keep your housing costs to no more than 20% of your income. This will stress-test your budget and cash flow and help you understand if this is feasible. Additionally, be very patient with spending after you purchase a home, and overestimate what you think you’ll need for expenses like furniture, yard maintenance, and other repairs. These tips will make your experience a lot smoother.
If you would like to get started on the buying process or have questions about how to succeed in this market, call me at (702) 686-1668 or email me. I would love to help with all your real estate needs.