Toughfinancialtimescallforcreative financing. Historically high mortgage rates and a cooling housing market have caused buyers and sellers to look for novel ways to stretch their dollar and seal a deal.
Buyers, scared by lofty mortgage rates that threaten to add hundreds of dollars to their monthly housing bill, are seeking out mortgage buy-downs as a way to trim some of that excess. Sellers, desperate to unload homes, are often willing to help out.
Simply put, a mortgage rate buydown is upfront money, often paid by the home seller (builders and lenders can also front the cost), to “buy down” the interest rate on the buyer’s loan for aperiodoftime.Thistemporarilyeases a buyer’s mortgage woes.
But just how practical are mortgage buy-downs for homebuyers?
We reached out to real estate experts for insight into the benefits and drawbacks of a mortgage buy-down. Here’s what they had to say.
There are different types of buydowns, but all of them lower your interest rate.
“While these funds are temporary, theyimmediatelylowerbuyers’monthly payments, making homeownership more affordable in the short term,” says Shri Ganeshram, who works with real
estate investors on financing as CEO of Awning.com in San Francisco.
One of the biggest downsides of a buy-down is that it’s temporary. A buydown will offer homebuyers a lower monthly mortgage payment for a set period of time, typically one to three years. But once the buy-down expires, your bills could become a lot heftier.
“When the initial buy-down period ends, your interest rate may reset to a higher rate than before,” says Shaun Martin, owner and CEO of We Buy Houses in Denver.
If this does happen, it may defeat the purpose of the buy-down and potentially lead to more costly payments down the line. It’s a risk that buyers have to consider and should discuss with their lender.
As every homeowner knows, moving into a new home—no matter how perfect it might seem initially, and no matter how many furnishings you already have on hand—often entails a seriesofunexpectedfixesandfurniture buys. The break you’ll get on your mortgage bill courtesy of a buy-down
can leave you with some cash on hand.
“Buy-downs can be especially valuable for investors or owners who need to make repairs to the home or furnish it,” Ganeshram points out.
Buy-downs are not offered universally, and when they are offered, one lender’s terms might differ considerably from another’s in the same region.
“Not all lenders will offer mortgage buy-downs, so you may need to shop around,” Martin says. “Additionally, the terms of buy-downs can vary from lender to lender, so it is important to do your research and find one that best meets your needs.”
Whether or not a buy-down is right for you might also depend on your
timeline and how long you plan to live in the home.
“If you’re planning on selling your home in a few years, a buy-down is a smart move,” says Emmanuel Guignard, senior mortgage broker and director of Loanscope. “But if you don’t have a steady income and are planning on living in the house long term, you may struggle to make the repayments.”
When making this momentous decision, it’s important to consult professionals.
“My advice is to consult a mortgage professional and understand the terms and conditions of the buydown, including the buy-down period, the increase in payments after the period, and the costs associated with the buy-down before making a decision,” Ganeshram says. “Ask them to do a calculation of how much you would save on the monthly payment in total versus how much they are asking you to commit upfront.”
By Kimberly Dawn Neumann realtor.com
ne of the reasons many homebuyers are drawn to buying a brand-new home is that they often get to choose many of the home’s features to suit their tastes. With a resale home, you pretty much get the place as is. But with new construction, you can call the shots on countertops, fixtures, flooring, paint colors, and so much more to make your home feel like, well, you!
However, prospective new-construction customers should realize that certain builders may offer a wide array of options, whereas others may offer few to none. Or, some may offer changes, which they charge extra for.
“When shopping for a builder, it is important to understand what is included in the base price for the plan
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There was a point, not too long ago, when buying a house was fairly straightforward: You’d schedule some tours, make an offer, and boom, you’re in the house before you know it.
Today, though, the housing market is a very different animal—fast, ferocious, and ever-changing. In such an environment, it’s no longer a given that all homebuyers will easily find a house and seal the deal. And even more surprisingly, those lucky folks who do succeed aren’t just sitting on piles of cash. On the contrary, real estate agents and other experts we spoke to say that successful homebuyers today simply possess a particular mindset and behaviors that help them persevere in today’s market.
So what are these qualities, you might ask?
While the market might be slowing down in some places, in other areas buyers are still facing intense competition for available properties. This means you might have to make offers on a few homes before one is accepted. As a result, persistence pays off more than ever before.
“Persistent [homebuyers] may still continue to find success,” Danielle Hale, chief economist for Realtor.com®, noted recently.
Indeed, she adds, recent data “showed that homeownership rates increased from a year ago, both overall and for nearly every age and racial and ethnic group.”
The lesson here is if your first, second, or third offer doesn’t get accepted, don’t give up.
Buying a home can be a highly emotional process, particularly if you’re in a hot market where you’re competing in a multiple-offer situation. And if you fall inlovewithacertainhome,watchout!Theheartbreak that ensues if your bid is rejected might bring you to tears and, worse, despair.
Whileit’sunderstandablethatfeelingscanrunamok, try to not let your mind wander toward the dark side where you start thinking “What’s wrong with me?”
Successful buyers “don’t take rejection personally,” says Ashley Chambers, a partner at ASAP Cash Offer in Miami. “If a house doesn’t work out, they know there will be others.”
Tryasbestyoucantoleanonlogicduringemotional moments—and do your best to never allow yourself to get too attached to a house before the deal is done.
Traditionally, if you were shopping for a home, you would look within a very small radius, particularly onethatgaveyouamanageablecommutetowork.But now, with the rise of working from home, those rules
have changed—and homebuyers’ standards should adjust along with it.
“One factor driving the success of home shoppers is an incredibly strong labor market that is giving workers the ability to negotiate remote or hybrid working arrangements, even as in-person work is growing more common,” explains Hale.
“With flexible work arrangements still available, home shoppers are able to consider homes farther afield of the office, in the more affordable suburbs or even in a new, less expensive state altogether, enacting their own personal plan to combat cost-of-living increases,” adds Hale.
If you have flexible work options available to you, consider expanding your home search beyond where you’d traditionally look. You might discover other options that will give you more value for your money.
Before making the biggest purchase of their life, smart shoppers would have questions—about
7HABITS
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This might seem like a perfectly innocent question from home buyers, but watch out—if you’re the home seller they’re asking, this is one of the diciest questions you can answer. The reason: Pretty much any explanation you give is bound to contain revealing info that these home buyers could use against you, thereby compromising your negotiating power.
“Home buyers are looking for any indication that you’d be willing to accept an offer that’s below list price,” says Annapolis, MD, real estate agent Greg Beckman. “If you say the wrong thing to a buyer, the person might make you a lowball offer.”
To prevent that from happening, Beckman recommends sellers let their
listing agent handle communication with prospective buyers. “Let your agent do all the talking,” he says, adding that sellers shouldn’t be present for showings or open houses. (Don’t have your agent yet? Here’s howtofindarealestateagentinyourarea.)
That said, there are times when you might still interact with home buyers— say, if they arrive early for a showing or linger until you return. If that happens, and if the seller asks why you’re selling, youwanttohaveashort,neutralresponse prepared in advance, says San Francisco realestateagentAllisonFortiniCrawford. Such as: “We love the home, but we’re ready for a change.”
So, what’s a bad answer? Well, there are many, actually, like these doozies below.
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Maybe you’ve been inspired by those “Sold” signs in your neighborhood; maybe you’re just ready for a change of scenery. Whateverthecase,agreatwaytogetanidea of how much your home is worth is to look at the recent sale prices of other homes in your neighborhood.
By identifying the sale prices of similar properties in your area, known as “comparables” (or comps), you can come upwitharealisticaskingprice.Whenusing comps, you’ll want to compare apples to apples—that is, homes that have a similar square footage and amenities as yours. You also want to look at homes that were sold within the same six-month period and that are similar in style.
“Itrytofindpropertieswithin150square feet either side of the subject property with similar features,” says Rick Snow, a Realtor® with Exit West Realty in El Paso, TX.
“The number of bedrooms doesn’t really matter because they are all figured into the square footage, but baths—half, threequarter, or full—give more value,” he says. “For example, a three-bedroom, two-bath home that is 1,800 square feet would come out the same as a four-bedroom, two-bath home that’s 1,800 square feet; but a threebedroom, two-and-a-half-bath would be worth more.
A good place to start your research is realtor.com®’s Just Sold feature. Just enter your ZIP code, and click “Search.” A list of recently sold homes in your area will pop up, along with their sale price. This will give you a general idea of the home prices in your area, but to really home in on a sensible price for your home, you should call on a real
estate agent.
“Agents can discuss pricing of other sales or pending sales in your area with other agents to help you estimate home values,” says Michele Lerner, author of “Homebuying: Tough Times, First Time, Any Time.” “A [real estate agent] can also provide you with a free comparable market analysis to help you decide if you want to sell your home.”
Andwhileit’sagreatideatofindoutabout recent home sales in your community, you also should recognize your home might not sell for a similar price.
In general, the real estate market changes rapidly, and timing is a large factor in a sale price. Many of the factors ofthelargermarketareoutofyourhands: Mortgage rates, the local economy, the nationaleconomy,consumerconfidence, and the availability of homes for sale all influence a final price.
If you look through similar listings and feel like your house isn’t up to snuff, you might think about remodeling before putting your home on the market. But before you hire a contractor, determine if the cost of a remodel will be worth the value it will add to your property.
Snow says homeowners often believe they can recapture money that is spent on improvements dollar for dollar, but that just isn’t the case.
“Many improvements add marketability but not additional value,” he says. “Even projects that add value typically don’t bring back a dollar-for-dollar return on investment.”
Homeowners might also make improvements that are too specific to their
personal taste and won’t appeal to a wide variety of buyers.
“When I am looking at the house, in my mind I’m thinking how much it will cost me to get rid of this or that. Many buyers then base their offer on value minus ‘what it’s going to cost me to make it the way I want it,’” says Snow.
If you are going to make some improvements with the hopes of increasing your home’s value, just be careful not to do too much remodeling.
“Be sure to consider the potential negative consequences of ‘overimproving’ your home for the neighborhood,” Lerner says. “It could be harder to sell your home in the future if it’s much larger or more expensive than the surrounding homes.”
Remember, buyers weigh many factors when they decide to buy a house, and digging deep into your home’s value can help you get the best price.
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agent Allison Fortini Crawford. Such as: “We love the home, but we’re ready for a change.”
So,what’sabadanswer?Well,thereare many,actually,likethesedooziesbelow.
This is one of the most common reasons why people sell their house. In fact, 17% of people surveyed by the moving company Allied Van Lines said they’ve been relocated for a job. Nonetheless, revealing this to home buyers could make them think that you’re desperate to sell fast and, in turn, lead them to make a lowball offer.
Trading up? Don’t relay that to home buyers. The reason is pretty simple: “You don’t want to give buyers the idea that the house may not be enough room for them, either,” says Crawford. Similarly…
Downsizing makes total sense for empty nesters and retirees, but likewise, you don’t want home buyers to think that your house is too large and difficult to maintain.
There are a couple of reasons why this response is a bad idea. First, you don’t want to give the impression that the house is too expensive or overpriced. Second, you don’t want home buyers to presume that your finances are in such poor shape that you’d accept a lowball offer. Put simply, “Never discuss your financial situation,” says Beckman.
If you want to fetch top dollar for your house, don’t divulge that you’ve already purchased your next home. “It makes the home buyer think that there’s
a sense of urgency and that you have to sell quickly,” says Crawford—which is a valid assumption, considering that a lot of people can’t afford to carry two mortgages at once.
Steerclearofsayinganythingthatcould paint the neighborhood in a negative light. Even saying that the area is quiet could backfire. “You don’t know what a home buyer wants,” says Beckman. For instance,somepeoplearedrawntoareas with a hopping night life (and the noise that entails), or at least a place where the streetsaren’tbarrenby8p.m.
‘Weneedtomoveclosertoourparents tohelpcareforthem’
Many people move to be closer to family—and in some cases, it’s out of necessity. However, there’s no need to share that information with home buyers, since this suggests you have to sellyourhomepronto.
‘Mybackproblemsmakeittoodifficult formetoclimbthestairs’
A number of home sellers move out of two- or three-story houses for health reasons. However, you don’t want to
draw attention to the fact that there are alotofstairsthroughoutthehome,since it could scare off older home buyers or homebuyerswithyoungchildren.
Energy-efficient home features are all the rage nowadays, which makes sense when you consider that home owners spend on average $2,000 a year on their energy bills. But some home buyers still overlook utility costs when they go house hunting. So, the very last thing you want to do is draw attention to the fact that your gas or electric bills are expensive.
No one wants to buy a money pit. So, even if you’re selling a clear fixer-upper, don’t mention maintenance costs to a home buyer. Also avoid talking about repairs that you just never got around to making, like repairing the bathtub caulking, as well as big projects like replacing the 20-year-old water heater— all reasons for home buyers to think twiceaboutmakinganoffer.
‘NOWTHATOUR CHILDRENHAVELEFT THENEST,WE’REREADY TODOWNSIZE’
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the property they hope to buy, the homebuying process itself, all of it. Yet in a fast, competitive market, some might feel pressure to keep questions to a minimum just to keep the deal moving, as though you should feel lucky a home seller accepted your offer at all.
Despite any reservations you might have, Rinal Patel, co-founder of We Buy Philly Home in Philadelphia, suggests bringing your questions to your real estate agent so that you can enter into your transaction with confidence.
“When looking at homes with your agent, be sure to ask them plenty of questions. Not only will this help you get a better understanding of the home and the market, but it will also give your agent a good sense of what you’re looking for,” he advises. “The more you know, the better equipped you’ll be to make the right decision.”
Everyone wants the perfect home. However, in this market, it’s likely that you will have to make some compromises. Inventory is still low and multiple buyers are competing for the same few homes, all of which means that you’ll be more likely to find success if you’re willing to compromise.
“The most successful buyers today are able to look beyond cosmetic repairs,” says Ashley York, managing broker and owner of Realtopia Real Estate in Lockport, IL. “They can visualize the potential of a property that other homebuyers may overlook in trying to find that perfect home that everyone else also wants right now.”
While house hunters of the past might have been able to snag their dream home without too much struggle, today’s homebuyers must be realists. And one way they do this is by knowing the difference between what they want and what they need in a home.
“I encourage buyers to make a list of needs versus wants,” says Marie Bromberg, an agent with Compass in New York City. “If the list of needs outweighs the wants, then they might need to reevaluate their criteria.”
While needs can remain non-negotiable, be willing to be flexible when it comes to your wants, especially if they are things that you can add to the property later on. This is what it takes if you ever hope to buy a home today.
“Being flexible is another essential habit to adopt as a homebuyer,” says Kerry Sherin, a consumer advocate with Ownerly in Austin, TX. Since homes are selling at an extremely fast pace, waiting until the weekend to see it might be too late.
“If your real estate agent calls you at the last minute with a great new listing, you should go as soon as you can,” advises Sherin.
And if you do make an offer, Sherin adds that it also pays to be “flexible and accommodating when it comes to contract negotiations.”
If a home seller has multiple offers, the easygoing homebuyer is bound to stand out more than one who demands tons of repairs or other stipulations to close the deal.
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you like—or you could end up spending thousands more to add the options and featuresyouwant,”saysKimberlyMackey, founder of New Homes Solutions and a salesandmarketingmanagementfirmin residentialhomebuilding.
In other words, it’s important for anyone shopping new-construction homes to have an understanding of what is standard and what will likely require an upgrade (meaning more money out of your pocket). Here’s how to know the difference, and what’s worth the additionalinvestment.
In the new-construction business, “standard”isarelativeterm,sincewhatis includedinthebasepricewilldependon who’sbuildingthehouse.
“What is standard and what should be standard will always be subjective and based on the builder’s price points in the market,” says Don Turner, national director of sales for new construction at Realtor.com. However, with rising mortgage rates and housing costs nibbling away at what buyers can afford, builderswillneedtoprovidemoretolure buyersawayfromresalehomesthathave everything in them and can quite often cometurnkey,addsTurner.
“What we are more commonly seeing now, especially with rates being higher, are builders increasing their level of standard features to include all appliances, even washers and dryers,” says Turner. And as long as home prices remain high, this trend is bound to stick around and can help seal the deal for cash-strapped buyers who have little moneyleftaftermovingin.
However, homebuyers who just assume that items like appliances would
automatically be part of the sale could be in for a rude awakening when they’re not. That’s why it’s vitally important to ask builders exactly what is included in thebaselineprice.
“New-home shoppers should always ask for the standard features sheet as wellasthelistofpossibleupgrades,”says Erica Bell, marketing manager for the homebuildingcompanyMiller&Smith.
Mackey also suggests that newconstruction buyers use the standard features sheet while touring model or spec homes to differentiate what designer upgrades they may have. This will keep potential homebuyers from assuming what they see in a model home is exactly what they’ll get (and being disappointed or surprised if they mustpaymoretomaketheirhomelook like the model they toured).
That being said, Turner suggests examples of upgrades might include the following:
• Quartz countertops instead of granite or Formica
• Bigger kitchen cabinets
• Stainless-steel appliances
• Hardwood flooring or tile versus carpet throughout the home
• Double-door entrances or a three-car garage
• Dual vanity sinks and/or separate tubsandshowersinthebathroom
Basically, anything that isn’t included on a builder’s standard features sheet will be charged as an upgrade, which can definitely affect the final price of a new-construction home.
Personal preferences aside, if you don’t have unlimited funds, what are the smartest upgrades to make that will increase the value of your newconstructionhome?
“My belief and guidance to buyers is they should keep standard lighting and standard plumbing fixtures as those are easily switched out aftermarket,” says Bell. “However, it is totally worth it to upgrade materials in your kitchens and bathrooms.”
Many experts agree that the biggest bang for your buck will probably come from upgrades to the flooring, kitchens, andbathrooms.
“Generally speaking, kitchen upgrades aregoingtogiveyouthebestROIofallthe options,” says Bill Samuel, owner of Blue Ladder Development. He adds that his favorite upgrade is a separate top cabinet withaglassfrontandinteriorlighting.
“If you pay attention to the fine details when designing your kitchen and do the upgrades in the right places, you’ll wind up with a very high-end-looking home,” saysSamuel.
Finally, you might also want to add
structuraloptionsthatwillincreasesquare footageandmaximizelivingspace.
“When you create your budget, focus first on the structural options, like bonus rooms or extra bedrooms, garage extensions, morning rooms, etc., becausethosearethethingsthataremore expensive to go back and do later,” says Mackey. “Even if the builder offers the spaceunfinished,youwillwanttoinclude thatspacetogiveyouroomtogrowdown theroad.”
Basically, any features that are not firmly attached to the structure of your house are fine to keep standard for now if you’re looking to save money. This includes most appliances, lighting, and basically anything that can be easily swappedoutlater.
“My belief and guidance to buyers is they should keep standard lighting and standard plumbing fixtures as those are easily switched out aftermarket,” says Bell. “However, it is totally worth it to upgrade materials in your kitchens and bathrooms.”
