Tips for homebuyers
Home prices are expected to remain flat or even fall in 2023.
Still, prices are lofty. And if you’re in the market for a home, here are some tips to keep costs down.
Look into mortgages with low downpayment requirements. The average down payment across the nation’s 50 largest metro areas clocked in at $62,611, based on data from January through October 2022, a LendingTree study found. Homebuyers in San Jose, California, shelled out the most money, with the city’s average down payment notching $142,006.
Many financial experts recommend that conventional loan borrowers put at least 20% down to avoid paying private mortgage insurance, but nearly two-thirds of millennials plan to put down less, according to a survey by Real Estate Witch, a website with information for home buyers and sellers. Fortunately, a conventional loan isn’t the only mortgage product out there.
If you’re a first-time buyer, you may be eligible for Freddie Mac’s HomeOne loan program or Fannie Mae’s similar HomeReady program, which permit down payments as low as 3%. Federal Housing Administration (FHA) loans — aimed at lower-income homebuyers — allow for down payments as low as 3.5%.
There are also zero-down mortgages, such as U.S. Department of Agriculture (USDA) Rural Development loans for qualified home buyers in towns with a population of typically 20,000 or less, and U.S. Department of Veterans Affairs (VA) loans for active-duty service members, veterans and surviving spouses.
A lender can also help assess the pros and cons of each loan product.
Consider a mortgage-rate buydown. A buydown typically entails a seller or buyer paying “discount points” — also referred to as mortgage points or prepaid interest points — at closing to get a lower mortgage rate.
Buydowns can last the life of the loan for one to three years before resetting to a higher rate.
Generally, one point is equivalent to 1% of the loan amount, with each point reducing the interest rate by about 0.25%. Some lenders are offering borrowers temporary buydowns free of charge to drum up business in today’s competitive market, says Jacob Channel, senior economist at LendingTree.
Shopping for a new home? A number of homebuilders are also offering buydowns to attract buyers.
Protect yourself with contingencies. Many buyers waived home inspection and appraisal contingencies in the past couple of years. Buyers are abandoning that strategy, says Denise Supplee, a real estate agent in Doylestown, Pennsylvania. “Contingencies are back in full force,” she says. A November Zillow survey found that more than four out of 10 real estate agents said buyers are including more contingencies in their offers.
Find a seasoned real estate agent. It’s been a hot seller’s market since mid 2020, but now that things are shifting, you should pick an agent who also has experience in a more balanced market.
That said, you’ll also want an agent who is active on social media — that’s where a lot of home transactions start. Dig into an agent’s online reviews from past buyers. And find someone who is plugged in to your local market and knows what’s coming up for sale.