How to Prepare for a Highly-Competitive 2021 Home-buying Season
The 2021 home-buying season is rapidly approaching. In many areas, it’s already here, as sellers are listing houses while buyers are getting their finances in order, all in preparation for the traditional spring and summer buying blitz.
It is, we must admit, an exciting and interesting time to be in the real estate and mortgage industry. Things are changing rapidly, yet we may see returns to “business as usual” (seasonal buying, for example) as the 2021 housing market moves forward.
Perfectly-accurate predictions are, of course, impossible. But most people genuinely believe that 2021 is going to be a highly competitive year for home buyers. This means aspiring homeowners need to be prepared for anything, including higher prices, lots of competition, low inventories, and even a few bidding wars.
With the right strategy, however, you can prepare for the 2021 home-buying seasons and successfully purchase the home of your dreams; all at a price you can afford.
What to Expect from the 2021 Home-Buying Season
The 2021 housing market could go many different directions, but most people are expecting a seller’s market, highlighted by a relatively-low inventory of both new and existing homes, along with many people looking to purchase properties.
Millennials, for one, could be a driving force in the 2021 housing market. These buyers are coming into the typical age when a first home purchase becomes more common (usually late twenties through thirties), and this could be a driving factor in high competition. Previously, it was assumed that this generation would never match the home-buying traditions of previous eras, and instead millennials would continue to rent in cities and live a more urbanized lifestyle. This assumption, however, appears to be fading, as millennials are finding peace, comfort, space, and economic stability in previously “uncool” suburban areas.
There is also built up demand from 2020. Although the previous year’s market actually did well, there are many people who put their purchase plans on hold. Now those plans could be reignited, creating a new surge of home buyers.
Interest rates, most assume, will remain low as well. While there could be a slight uptick in rates, most expect interest to remain relatively stable and low, making a home purchase even more attractive.
All of these factors, and more, could make the 2021 home-buying season one of the most competitive in recent memory. If you are a buyer, this can seem intimidating, but a little preparation will set you up for a successful, affordable purchase.
How to Prepare for a Highly-Competitive 2021 Home-Buying Season
Prepare Your Finances
First and foremost, you need to prepare your finances for a home purchase. Several months in advance, even a half a year ahead of time, take a look at your budget and home expenses, as well as your income, to see how much you can comfortably afford in monthly payments. Pull your credit reports to see if your score needs improvement, and start saving for the upfront costs of purchasing a home, which can include downpayment, closing fees, inspection costs, and more.
Research the Local Market
During the 2021 home-buying season, you may feel pressure to act quickly. You want to win a property fast, but moving too quickly can be dangerous if you don’t understand the local market.
Instead of moving too quickly, take some time to get to know the market. Look at numerous houses either virtually or in person. Do your homework over the course of a month so you understand the various neighborhoods and pricing points. You should also look for signs of economic development, such as parks, hospitals, new schools, and transit hubs.
Get Pre-Approved (Not Just Pre-Qualified)
Pre-qualification and pre-approval are two similar but different steps in the home-buying process. Essentially, pre-qualification is less detailed, less official, and can often be completed over the phone.
Pre-approval, on the other hand, is nearly a guarantee that financing will be granted. (Assuming nothing changes in the buyer’s financial picture.)
Start with High-Quality Offers
In a competitive market, with dozens of buyers scrambling for a house, you don’t have the luxury of negotiating with sellers. You may only have one chance to make an offer before the seller moves on, so you have to make it count. If you really like the home, start with your best possible offer so that sellers understand you are serious.
When making the initial offer, you may also want to include an “escalation clause.” This is essentially a statement saying that if another buyer goes above your offer, you would be willing to go higher still. Work with your real estate agent to figure an appropriate escalation for the situation.
Think About Waiving Contingencies
A contingent offer (the most common type of real estate offer) simply means that you will purchase the home at a certain price as long as certain criteria (i.e. “contingencies”) are met. These contingencies can include appraisals, inspections, and repairs, as well as mortgage approval.
Waiving certain contingencies can speed the process, but you need to be prepared for this step. In particular, you may need additional money in your pre-purchase budget to cover the cost of repairs, which would have been fixed if a contingent offer was used.
Go Light on “Needs”
When purchasing a home, one of the best strategies is to create a “needs vs wants list,” which helps refine your search and allows you to focus on a home that will fit your goals for the future. The needs are features or characteristics that you must have; any home without them will not be considered.
In a competitive market, you can’t be terribly choosy on homes, so it’s best to keeps your needs short and be flexible with many features. Commute time, for example, may need to be stretched another 15 or 20 minutes to help you find a home that fits your budget.
Find the Best Mortgage for Your Needs
If you are thinking of purchasing a home in 2021, contact our staff to get pre-approved right away!