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What first-time home buyers should know right now
Worried about rising interest rates? You’re not alone. But if you’re wading into the housing market, read this first.
It is an exciting yet strange time to be a first-time home buyer. Interest rates are rising, which is nerve-wracking, but are still relatively low, which is attractive. The market is competitive and, in many areas, favors sellers. There are, of course, some general home-buying dos and don’ts which change little over time (make sure you can afford the monthly mortgage payment, do an inspection, have your financing in place, carefully evaluate whether you should actually buy, not rent…).
But if you want to buy a home now or now-ish, what should you know about navigating today’s market?
To find out, we asked Steve Wydler, a associate broker (at Wydler Brothers of Compass) who works in a market known as the DMV — Washington, DC, and nearby suburbs of Virginia and Maryland. It’s a competitive seller’s market, and as such it provides useful examples and guidance for navigating similar markets in other parts of the country. Here’s what we learned.
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Don’t believe the hype
“A lot of people are hyper-focused on interest rates now, and there’s a lot of ‘I missed the window, I should’ve bought three months ago,’” says Wydler. “But Freddie Mac has a great website that shows interest rates going back 50 years, and if you look, we’re still near historical lows.”
This means that if you have a nagging feeling that you should buy right now, or if you’re crippled by financial FOMO, you should probably tune it out and make your decision calmly, once you’ve checked your finances and really figured out what kind of home you want to buy, even if the rate rises a little during the process.
“Buying something today at a rate you think is high is OK,” says Wydler. “If it goes up, you’ll feel like a genius. If it goes down you can refinance. In general, I don’t think the interest rate should impact the decision beyond making sure you can afford the monthly payment.”
An agent can help
You always need a good agent when buying a home, but in a competitive market, it’s particularly important: you may need to make big decisions quickly, so you need someone who can help you make good choices at speed.
An agent who really knows your market is also well positioned to help you spot a good opportunity when it comes along. “Sometimes the worst thing that can happen is the first property a buyer sees is actually the best one, but they have to see another 10 to validate that,” says Wydler. “By the time they see them, that first one’s gone.”
An agent who knows the market can help you avoid that situation by telling you when you have, in fact, stumbled on something good quickly. Just as important, he or she can also tell you when you just think the first place you saw is the deal of the century, but it actually isn’t. A good agent can also show you off-market properties, which is useful now that many people — regular folk as well as professionals — have access to the same listings online.
Consider your priorities
But before you start looking at properties, there’s some prep to do. “I like to establish a must-have and a nice-to-have list,” says Wydler. “Must-have should be as short as possible and nice-to-have as long as possible. And it’s encouraged for those lists to change as we go out and look at properties.” Because so many listings are online, it’s important to go through those lists in great detail, since a buyer is dealing with rigid search terms, not a human being who can interpret nuance.
For example, let’s say you tell your agent that you want five bedrooms, but in fact you want to use one of those rooms as an office: “The search criteria are hard,” says Wydler. “If you search ‘minimum five bedrooms’ you will not see properties with four bedrooms and an office,” so you should be as detailed as possible about your needs.
The same idea applies if you want a two-car garage in order to use one of those parking spots as a workshop or for storage: Search only for “two-car garage” and properties with a one-car garage and an additional workshop space won’t come up.
Make an offer they can’t refuse
Perhaps the main difference between being a buyer in a buyers’ market versus a sellers’ market is the kind of offer you’ll have to make. In a strong sellers’ market (which is what much of the country is right now), “buyers are not dictating the offer terms, the sellers are,” says Wydler. “The seller might say ‘I want to close as quickly as possible,’ or they might say ‘I want to be here through the end of August,’” and a buyer will likely have to comply. “In most cases the buyers are writing their offers exactly tailored to what the sellers are asking for,” he says.
Beyond simply offering the seller an enormous pile of money, buyers can also make themselves more attractive by ensuring that their financing is solid. If the source of your financing is responsive (in case the seller has questions) and can write a strong pre-approval letter, that helps reassure the seller that the deal will go smoothly.
Another thing that has that effect is the size of your down payment. “Everything else being equal, people would rather accept an offer with 50% down than 10% down,” says Wydler. “Lower loan, lower risk of appraisal issues.” This may not suit you, but if it does, it’s worth having in mind.
Some things are always true
In this or any market, remember that home buying works best when it’s a long-term purchase. If you can see yourself owning a property for at least five years you should consider buying, says Wydler, but if you think you’ll have it for less than three, consider renting. This is partly because of the costs associated with home buying and home ownership — it takes time for those to pay for themselves. Also, markets go up and down in the short term, but if you buy in an area where prices are increasing over the long term, you’re more likely to see a profit if you can keep your property longer.
Buying a home is just the beginning of your financial journey. One other thing to consider regardless of the market is life insurance. It’s sensible to help make sure your family can keep paying the mortgage if you or your partner isn’t around anymore, and it will also remove at least one piece of worry from a stressful process.
About Michael DavisRead more by Michael Davis
Our editorial policy
Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our editorial policy
Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.
Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.
Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.
MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.
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