Purchasing a home can be a daunting process. It is not as simple as going to a shop and buying the item you want. With property prices constantly on the rise, buying a home is a challenge for many.
Aside from things like how the real estate climate is going to be in a few years when you plan to purchase your home; how much will your home value increase; will the market slow down; what is the forecast for supply and demand, there are still many things that you need to think about and it can be a very stressful process.
In this blog, we have taken a look at those and came up with these top 3 things you need to know before going out to buy a home in 2022:
- Down Payment Funds
Are they liquid? In the bank account already or are they in stocks where you still need to sell your stocks? This needs to be pointed out because we’re in a very volatile and dynamic market where things change every week and every day where it could swing up and it could also swing down. And if it swings low enough, that could mean you might not be able to close on your property because the value of the stock has gone down so much.
But there’s a loan product out there where you don’t actually have to sell the stocks to access the funds. It’s called the Securities-Based Line of Credit. Basically, you’re just borrowing against the value of your stock and there’s brokerages out there that will lend on the value of stock from 50% all the way up to 70% of the value.
These types of loans are good for bridge loans where you’re trying to buy a property and you need the funds temporarily to go from one property to another or they’re good for short term and long term loans. The key thing is you just need some type of exit strategy, a repayment schedule or a strategy that allows you to get out of this loan because it could be risky if you keep it for a long term and if you don’t have a plan to pay it back.
- Getting an Updated Preapproval Letter
We are in a rising interest rate environment where the interest rate changes every single day. The interest rate that you got quoted last month or the month before is completely different from what interest rates are today so talk to your lender and get your pre approval updated to make sure you know exactly what you can qualify for.
While you’re at it, talk to your lender about relationship pricing. Relationship Pricing means that the bank can give you better terms, better rates based on the relationship that you have. In simple terms, the bank wants you to put more money in the bank. Money doesn’t necessarily mean cash in the savings account. It could be stocks for instance, if you had a previous employer of 401k with them and you need to transfer those 401k funds, you can do that with some banks out there that have a brokerage and just transfer those stocks to develop that relationship.
As mentioned, we are in a rising interest rate environment and the FEDS are basically the folks who control the interest rate for our country. They have already said that they’re going to be raising interest rates three times this year. They did it once recently and they have two more scheduled one in summer (June 21 – September 22) and then another one in fall (September 23 – December 21). And then they have two more scheduled in 2023 and then two more rate increases in 2024 so expect the interest rates to continuously go up in the coming years.
At the end of the day, you need to talk to your lender and continue that dialogue with them to make sure that your qualification is on point and you really understand your monthly payments because as interest rates go up, your monthly payments will go up as well. Also talk to your lender about different loan products that’s available out there.
They’ve probably already talked about a 30 year fixed mortgage, which is the standard mortgage that everyone talks about. But there’s also this loan product called Adjustable Rate Mortgage. It is a home loan with a variable interest rate. With an ARM, the initial interest rate is fixed for a period of time. After that, the interest rate applied on the outstanding balance resets periodically, at yearly or even monthly intervals.
Higher rates basically equates to higher lending cost so you’re going to be paying more per month for the same loan today compared to if you would have gotten the loan three months ago. But with higher interest rates, the good thing is you’re not going to see the crazy over bids of a few $100,000 or in some cases, $1 million dollars over the asking price.
There will probably be less buyers out there because of these higher rates. It’s going to put a lot of buyers on the sidelines. Therefore, we’re having this shift where it’s going to be a bit more balanced market. However, this balanced market gives you the opportunity to find the right home for you. And it also gives you more time to find that right home and inspect the property to make sure it’s in the condition that you want it to be.
There’s also less competition. There’s no longer the bidding war of 10, 15, 20 offers where you’re over paying just to get the property. It’s just that there’s a higher lending cost.
If you’re thinking about getting in the market, keep this in mind. Markets are ever changing so it doesn’t matter where interest rates are at, it doesn’t matter what your friends are doing or what the media is saying. Forget all that. Buying a home is one of the biggest financial decisions that most people will ever make. So you should only buy when it’s the right time for YOU.
I hope you learned something from this blog. If you have any further questions, please don’t hesitate to contact me at [email protected] or 650-255-1511. Additionally, if you would like to see what homes are available for sale in the area or want to schedule a showing, please feel free to contact us anytime!