Looking to buy a home? Here are 5 lessons from shoppers who failed to do so last year
This article is reprinted by permission from NerdWallet.
Record-low housing inventory, high prices and low mortgage rates made an interesting backdrop for the 2021 real estate market. Millions fought tooth and nail to close on homes throughout the year, but millions more were unsuccessful in their attempts.
The 2021 housing market was booming, but that doesn’t mean buying a house was a breeze. In fact, 66% of Americans who started last year with intentions to buy were unsuccessful, according to NerdWallet’s 2022 Home Buyer Report. With a lofty 26 million planning to buy homes this year, according to the survey, the lessons from failed 2021 attempts may contain guidance for this year’s shoppers.
More than one-third (35%) of Americans who planned to buy a home in 2021 but didn’t do so say they postponed or canceled those plans due to the pandemic or related effects. Of course, there’s very little individual buyers can do about the broad public health and economic impacts we’re all experiencing, but that doesn’t mean all hope is lost.
Studying the most common barriers to buying in 2021 may give prospective homeowners the edge they need to close a deal this year.
1. Competitive offers close deals
Low inventory amid high demand makes for a competitive market, and in that regard, 2022 will be similar to 2021. One-fourth (25%) of Americans who planned, but failed, to buy a home in 2021 say they made an offer on at least one home but didn’t ultimately go under contract.
A competitive offer isn’t only the highest offer. Sure, money talks, and you’re more likely to be successful if you can outbid the competition. But there are other ways to make your offer stand out.
Make the transaction look as easy as possible by keeping it simple and convenient for the seller. Demonstrate your ability to pay with a mortgage preapproval, suggest a speedy closing and let the seller choose the date, and offer to buy the home as-is after it’s professionally inspected. Your real estate agent can help you write an offer that gets moved to the top of the pile, without putting you at undue risk.
See: Emboldened by a hot property market, sellers push real-estate agents to lower commission fees
2. Available homes may not be perfect homes
The greater the housing shortage, the more flexible potential buyers will need to be.
One-fourth (25%) of unsuccessful buyers in 2021 say they held off on their plans because they couldn’t find a home that met their needs. There’s a good chance the line between wants and needs, for many in this group, isn’t clearly defined.
Before you begin shopping, make a list of all of the features you’d like to have in a home. Then, mark those that aren’t truly necessary. The more features you can compromise on, the more likely you are to end up with a home of your own. This doesn’t mean you need to be willing to stuff a family of five into two bedrooms, but maybe you can do without a two-car garage or a finished basement.
3. Buying in 2022 will still be tough
Nearly one-fourth (24%) of unsuccessful buyers last year say they held off on their buying plans because they think it will be easier to buy in 2022. But the forces that made homebuying a challenge in 2021 will largely continue in 2022.
The rate of price growth may level off somewhat in the coming year, but prices aren’t likely to reverse course and come down dramatically. And the shortage of homes on the market isn’t likely to experience a dramatic change either. According to the same survey, of the potential home sellers who want to put their home on the market this year, 89% say something is holding them back — including concerns about being able to find or afford a new home themselves.
If you hope to buy this year, brace yourself for a challenge. Realistic expectations can insulate you from disappointment and help you build contingency plans for when you find yourself battling it out with other potential buyers.
4. Current home prices could bust budgets
It’s tempting to borrow more money or overextend yourself to get under contract. Don’t. Nearly one-fourth (24%) of last year’s successful buyers say they walked away from the market because they couldn’t afford the homes that were available.
Be fastidious when setting your homebuying budget, with the resolve that you’ll stick to it when the going gets tough. Stretching too far to buy a home only to find yourself house poor can be a recipe for sleepless nights under your new roof. A home affordability calculator can get you started in the right direction, accounting for all of your existing expenses along with those that come with homeownership.
5. Borrowing for a home isn’t a sure thing
Qualifying for a mortgage generally takes an adequate and consistent income, a manageable amount of existing debt and a credit history that makes you a good risk for lenders. While 16% of unsuccessful 2021 home buyers cited not being able to qualify for a mortgage, it’s possible some of them didn’t actually apply and merely assumed they would be denied.
Buying a home is most often a long-term goal, and it can take years to get your income and credit in shape enough to get a mortgage. Aim for a credit history that showcases on-time payments, keep debt levels down and save up a down payment to make your mortgage application most attractive. Keep in mind, a healthy down payment will reduce the total cost of your home loan by saving you in interest and private mortgage insurance (required on mortgages that have less than a 20% down payment).
Read next: These 2 numbers sum up why the housing market won’t get back to normal for a long time
There are also programs available for first-time buyers that can make it somewhat easier to qualify for a home loan.
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Elizabeth Renter writes for NerdWallet. Email: [email protected]. Twitter: @elizabethrenter.
