The housing market is cooling down, but it’s still tough out there. Today’s high-interest rates have more homeowners staying put instead of risking an increase in rates, meaning there’s less inventory. What does exist is often scooped up by corporate investors with deep cash pockets that an individual buyer simply cannot compete with.
As a potential buyer, you face several hurdles. High-interest rates and decreasing inventory can make your pursuit seem hopeless. Are you destined to rent forever? Would now be a good time to start trekking the wilds in search of a good cave?
Please, take heart. Determined buyers have found ways in equally economically tough times to get a permanent roof over their heads. Here are tips for securing your dream home this year.
Consider a Mortgage Buy-Down
What is a mortgage buy-down? Traditionally, this term refers to a plan lenders use to allow you to reduce high-interest rates by paying more upfront for your home’s purchase. However, it’s critical to understand the terms you agree to if you choose this route.
For example, some buydowns result in a more or less permanent interest rate reduction (unless you later refinance). In such plans, you pay 1% of the total loan amount for each .25% interest rate reduction, although the exact percentages may vary by lender. Lenders also use the term “discount points” to refer to this type of buy-down.
However, there are also temporary buy-downs. These give you a break on your interest for the first year or two, helping you recuperate financially after plopping down a huge downpayment. A 2/1 buydown means the first year’s interest is two percentage points below the long-term rate and 1% lower the second year. A 3/2/1 buydown extends this by one year.
What’s the catch? Lenders must still account for that interest. Either they must pick up the slack, or the home’s seller pays the difference. In that way, this model isn’t that far removed from sellers paying more toward closing costs.
Essentially, these programs result in a lower profit margin for the seller or lender. Therefore, it’s best to keep this card in your back pocket early in negotiations until you know how anxious the seller is to close. If they’ve already purchased elsewhere and don’t want to be stuck with two mortgages, you could be in luck.
Get Smart About Your Search
It’s easy to search for a home online these days, but not quite so simple to find legitimate listings. Popular home search websites can fall woefully out of date, wasting your time with properties already under contract but not yet updated.
Furthermore, scams exist in droves. While you shouldn’t have to worry about commercial sites like Redfin and Zillow, scammers use sites like Craigslist and Nextdoor to “sell” properties for which they have no title, bilking people out of thousands of dollars.
Your best bet is to locate a few properties that meet your specifications and contact the listing agents directly. In some states, real estate agents must decide whether to represent buyers or sellers, but other jurisdictions have no such restrictions. Even if you can’t work directly with the listing agent, they can recommend an esteemed colleague who can help you with your search.
Working with a licensed Realtor® protects you in several ways. These professionals have the knowledge to educate you through the sales process, ensure the property sale is fully legal and official and connect you with their network of lending professionals to help you get the right mortgage.
Consider a Non-Traditional Purchase
What is a non-traditional home purchase? It relies on heavier seller involvement throughout the buying process instead of obtaining a traditional mortgage. There are two basic models you might consider.
Such structures often benefit buyers with credit woes or other hardships complicating the lending process. They can be harder to find but potential boons for those who otherwise could not purchase a home of their own. It also reduces the expenses involved with moving to another apartment while struggling to save a downpayment.
Seller Carryback
In a seller carryback, the title to the real property changes hands as in a traditional sale. However, the seller, not a third-party lender, acts as the lender. Such arrangements can make for a quick and easy sale if the seller owns the property free and clear.
It’s more common for the seller to have a mortgage. If their lender allows seller carrybacks, you could lock in their existing rate. However, the principal doesn’t transfer, meaning you’ll still pay the full purchase price. Such plans usually come with a balloon payment at the end of a specified term, like five years, during which the buyer is free to secure alternative financing.
Lease Purchase or Lease Option
In a lease purchase, the seller maintains ownership of the property, essentially acting as a landlord. The buyer originally takes possession as a tenant. There are two basic structures to such plans:
Both of these structures require a nonrefundable option fee that can be quite steep — you’re basically compensating the seller for not selling the property during the lease term. Additionally, buyers may pay an additional monthly fee typically applied to the downpayment in a lease-purchase contract. Buyers usually pay homeowners insurance and accept the other responsibilities of ownership throughout the lease term and purchase process.
Securing Your Dream Home This Year
Today’s market is tough for buyers. However, it’s still possible to secure your dream home this year.
Consider the three tips above for securing your dream home this year. You can find a way to thrive despite challenging market conditions.
About The Author
Ava Roman (she/her) is the Managing Editor of Revivalist, a women’s lifestyle magazine that empowers women to live their most authentic life. When Ava is not writing you’ll find her in a yoga class, advocating for body positivity, whipping up something delicious in the kitchen, or smashing the patriarchy.