Buying a house is a minefield full of “I didn’t know thats.” From choosing the right home to qualifying for the best mortgage, you want to minimize the things you don’t know.
So let’s lower your “didn’t-know” ratio. With a shifting lending landscape, unpredictable interest rates and down payment priorities based on your local market, here’s what you’ll need to know about buying a home in 2020.
What’s the first step to buying a house in 2020?
With acute shortages of homes for sale in so many markets throughout the nation, getting a preapproval for a home loan is more important than ever. Cash buyers used to give sellers confidence that a deal would close quickly, but fewer cash buyers are shopping right now. And when houses weren’t in such short supply, buyers didn’t face the pressures of intense seller’s markets.
With a lender lined up and a preapproval letter in your pocket, sellers know you’re serious.
“With a preapproval, [sellers] feel comfortable that, ‘Hey, this guy is a legit person who is going to buy and close,’” says Mat Ishbia, CEO of United Wholesale Mortgage in Pontiac, Michigan.
“[Prospective buyers] need to immediately start with the lender,” agrees Patti Michels, a real estate agent in Hinsdale, Illinois, a suburb of Chicago. “See what you can afford and see what your hurdles are going to be.”
Michels says shopping for homes before gaining a loan preapproval is a big home buyer mistake. “[Some buyers] don’t realize how many underwriting deal breakers there are” that can hijack — or significantly delay — getting a mortgage.
Those home loan approval pitfalls can include issues with student loans, significant recent cash deposits, and the manner in which self-employed income is reported.
What credit score is needed to buy a house in 2020?
A FICO of 620 is typically the minimum credit score needed to buy a house, Ishbia says, though some lenders will go down to 580 or below.
“What I would consider is average credit is 620 to 680,” Ishbia says. “Very good credit is 680 to 740, and if you’re over 740, you’re spotless.”
How much house can I afford?
‘How much house can I afford?’ is the first-time home buyer question Ishbia says he is asked most often. He offers a rule-of-thumb to help.
“Instead of telling them about debt-to-income ratios,” Ishbia says, he tells first-time buyers to consider three times their income as a starting point.
So, if you and your spouse have a combined annual income of $110,000, “most likely $330,000 is your price range, plus or minus a couple of percent,” he says.
But rather than guessing, you can simply take the first step — talking to a lender.
“That’s why you get the mortgage first,” Ishbia adds.
2020 mortgage rate trends
Mortgage rates have lingered around 4% APR for months now, and, barring an economic surprise, are expected to remain favorable this year.
“Mortgage rates aren’t expected to move much in either direction in 2020. If the forecasts are accurate, mortgage rates aren’t likely to go up a whole lot,” says Holden Lewis, who produces NerdWallet’s mortgage interest rates forecast. “That’s faintly encouraging to the legions of people who have difficulty finding affordable homes to buy. After all, if mortgage rates remain steady, those home shoppers won’t have to worry that rising rates will push monthly payments past their limits of affordability. But they still have to contend with rising home prices.”
In 2019, more than a third of Americans said they planned to buy within the next five years — and nearly one-fourth of those prospective buyers said they’d buy in the next 12 months, according to NerdWallet’s 2019 Home Buyer Report.
“Anytime you can snag a mortgage rate around 4%, you’re doing well,” Lewis adds.
Down payments in 2020
“People still think they need 20% down,” Ishbia says. “Three percent down, 5% down are the ways people are buying homes.” In fact, 6% was the median down payment for first-time home buyers who financed a purchase in 2019, according to a report by the National Association of Realtors. For repeat buyers, the median down payment was 16%.
“You don’t need 20% down to buy a home. It’s the biggest myth out there,” he adds.
Except if you’re in a competitive real estate market, Michels cautions.
“I think 20% down — especially in a tight market — is going to come into play,” she says. “If somebody else has 10% and you’ve got 20, that’s going to be a factor.” Michels says listing agents will usually advise sellers to go with the buyer who has the most cash on the table.
“When it comes into play is when you’re up against someone else on a home you really want,” she adds.
The fall real estate market isn’t historically synonymous with the frenzied profile of the summer market. However, fall real estate trends are looking different this year. The intrusion of the Coronavirus has certainly altered the way the housing sector operates, but that doesn’t mean it was all that bad. Here are six things everyone should know about the fall real estate market:
- Price Fluctuations
Pent-up demand has already increased prices in some areas, and low-interest rates are being used to spur more activity. While prices may drop in the near term, they have recently been on an upward trajectory. As a result, the fall real estate market may be the perfect time to sell a property. - Less Inventory
It’s no secret: inventory levels are one main factor that controls the housing market and its ability to reach its full potential. If there aren’t enough homes to keep up with demand, the market can drastically slow. The fall real estate market is experiencing a low inventory. Notably, there are new construction projects on the horizon, but they won’t be ready to add to the pool of inventory anytime soon. In fact, many of those homes are already under contract before they are completed! For now, we are stuck with insufficient inventory. The good news for sellers, is the inventory shortage has led to increased competition, and has contributed to higher-than-usual fall prices! - Low Mortgage Rates
Right now, 30-year fixed-rate mortgages carry an average interest rate of 2.94%, according to Freddie Mac. At that rate, borrowing costs are historically low. Mortgage rates are so low buying activity is starting to inch higher in many markets. We aren’t sure exactly how long rates will remain this low, but for now, the catalyst is working. Today’s rates are saving buyers thousands of dollars over the life of the loans, and nobody wants to miss out. When interest rates are lower, buyer affordability is higher! - Fast-Paced Activity
It is critical that buyers pay attention to the pace of the market. Due, in large part, to the inherent lack of inventory, competition is fierce over the available properties. Most properties for sale, if they are priced right, are receiving multiple offers, making time of the essence for interested parties. At the very least, it’s safe to assume prospective buyers will jump on those properties they find that fit their criteria. A buyer would be wise to do everything they can to facilitate a timely transaction to avoid interference from the impending competition. Days on market have dropped, which means buyers need to be ready to act fast and decisively. For more information on how to ensure a speedy transaction, simply send us an email or give us a call. - More Demand
Despite the current events, demand remains strong. It would appear as if everyone who wanted to buy before COVID-19 shut the world down, still wants to buy today; it’s as simple as that. While today’s unemployment numbers have shaken a lot of people’s confidence, there are still a TON of buyers that are ready to buy. Unemployment has been steadily improving, and many people are finding that they can work from home. Working from home has opened many doors for buyers that can now shop in areas previously restricted by their location of employment. In addition, Millennials are now coming of age. Expected to make up the largest portion of homebuyers this fall, Millennials are heavy favorites to drive demand in the latter part of the year. - Year end Sales for Home Improvement
The end of the year is loaded with several different holidays, most of which tend to correspond with year-end sales. November is practically dedicated to sales in every form; everyone from department stores to online retailers compete for consumers’ business by offering one-a-year sales. As a result, anyone with a home and a project list is awarded the opportunity to secure some amazing deals on products for the house. It is very common for everything from kitchen sinks and refrigerators to flooring and light fixtures to be on sale at the end of the year. Homeowners wanting to make improvements should take advantage of these year-end sales if they are wanting to save some money. The money saved at the counter can increase the value of a home, which can help save homeowners even more money.
Whether you’re buying or selling, now is the time to partner up with an agent to ensure your success!
We look forward to hearing from you,
Chelsea & Bailey
DT Ranch Real Estate Group
Double Take Real Estate Group at Keller Williams Realty DFW Metro SW