After two years of steeply-rising home prices that still haven’t leveled out, we are now experiencing an increase of homeownership costs in other areas—higher interest rates, and higher associated costs due to inflation. Despite these hurdles to homebuying, the market in Central Florida is still exceptionally strong, with more buyers than homes for sale.
With so many interested buyers and increasing home costs, you may be wary of jumping into the field, too. Inflation can be hard on your wallet, but it doesn’t necessarily mean that you shouldn’t try to buy a home. If you already own a home, you’ll likely have seen the value of your home increase enough to offset much of the cost of buying a new home. And homeownership is an excellent way to shield yourself from rising rent costs if you are a first-time buyer—while building wealth. And As Mark Zipper, managing broker at the Zip Group, recently explained to Forbes Advisor, “A predictable mortgage payment each month not only helps you hedge against rising prices elsewhere in the economy. Homeowners typically have a net worth that’s 40 times greater than renters.”
If you’re interested in buying a house in Gainesville or Ocala, but are nervous about the current market, take heart. There are a number of things you can do to increase your chance of finding the right home and putting in a successful offer. In this post we’ll discuss what you need to know about buying a house when inflation is high and the housing market is hot, providing our best tips for how to stand out to sellers and make that winning offer. First, let’s talk about your budget.
Know what you can afford.
You’ll need to take a long, hard look at your finances: your savings, income, and monthly budget, to determine what you can afford. You can start by using a mortgage calculator to get a rough idea of what your monthly payment will be, compared to your current housing budget, especially if you’re renting. Don’t just crunch the numbers once: consider what your monthly costs will look like at different price points, to get an idea of what home prices make the most sense for you. Mortgage calculators that allow you to plug in your down payment, taxes, and insurance, will give you a better idea of what you’ll be looking to spend each month than those that just include your loan payment.
If you find that your expected payments will exceed what you currently pay for housing, you’ll need to scrutinize your monthly budget to determine what is truly affordable for you. Keep in mind that buying a new home will have additional expenditures, from closing costs and moving expenses to purchasing new furnishings and decorations. And if your new home will be larger, also consider that your utility bills will also increase.
Part of calculating what you can afford might include how much you have to spend on your down payment. Ideally, you’ll be putting 20% down—to get the best rates, avoid private mortgage insurance (PMI), and lower your monthly payments. But if you can’t put that much down, you’ll need to brace yourself for the flipside of things: potentially higher rates, monthly PMI fees, and higher monthly payments.
Though conventional loans might have lower rates (and lower monthly payments) if you can qualify, first time homebuyers should investigate FHA loans as a viable alternative. These loans are designed to meet the needs of first-time homebuyers who may have lower credit scores or lack the resources for a large down payment. Even if the rate is slightly higher, buying your home will save you money over renting in the long run. You can also apply for down payment assistance through the Florida Hometown Heroes Program.
Understand the housing market.
A major part of understanding what you can afford and what will meet your needs is understanding the housing market. If it’s been a few years since you shopped for a new home, it’s important to know how much the housing market has changed recently—even though the key elements of homebuying remain largely the same. Familiarize yourself with the current market—how fast homes are selling, how many bids are desirable homes receiving, how often do home sales go ‘over asking’—and specifically the market pertaining to the type of homes and location that most interests you. This will help you set or adjust your expectations and plan ahead for potential common hurdles.
Additionally, if you plan on buying a new home while selling your current home, learning about the market will help you better gauge potential interest, consider possible updates you might need to make, as well as create an approximate timeframe for buying and selling.
Zillow and Redfin have great market resource tools, but they can only get you so far. A key part of understanding the housing market is speaking to a local real estate agent who has been working in your regional market through years of ups and downs and knows the current one better than anyone else.
Get preapproved before you contact a real estate agent and start looking for homes.
Before you reach out to that agent, you’ll want to get preapproved for a home loan. It’s not wise to make an offer for a home without preapproval, and even if you’ve seriously considered your budget yourself, there could be other factors that dictate what size loan you will qualify for. So you don’t waste your time looking at the wrong homes—or miss an opportunity to act quickly on the home of your dreams—it’s important to get that preapproval in hand before you seriously start on your hunt.
Though the terms ‘prequalify’ and ‘preapprove’ are often used synonymously, a preapproval is more robust, and a more dependable way of determining whether or not you will actually receive mortgage funding. Instead of simply self-reporting your income, you will need to provide documentation of your income and expenses, as well as your current debts. A lender will then generate a ‘preapproval letter’ which commits to lending you a certain amount, barring no major changes or other issues. This is exactly what sellers want to see when they consider whether or not to take your offer seriously.
Getting preapproved also has a major benefit in this time of rising interest rates. At the time of preapproval, you may be able to lock in the current interest rate, and get ahead of the curve, which could save you thousands of dollars over the life of your loan. The flipside is also true—if rates go up and you haven’t locked in, the total amount that you can actually get a loan for might decrease.
For more on these early stages of mortgage approval, check out our post, “Preapproval vs. Prequalification.”
Shop around for mortgages.
As you work on your mortgage preapproval, keep in mind that there is no strict limit to the number of preapprovals that you can have. In fact, once you have all your documents in order, the process can be pretty simple to repeat. Ask each lender for a loan estimate, so you can accurately compare your choices—both their interest rates and their fees. And as long as you apply for all your preapprovals within 45 days, the extra approvals won’t affect your credit score.
As you shop around for the best loan here a few things you can do to ensure you get the best rate:
- Get at least three loan estimates.
- Look into credit unions: they tend to have lower rates and less restrictive requirements
- Ask about different mortgage options available to you at each lender. An FHA loan may have a lower down payment, while a variable/adjustable rate may result in lower payments when interest rates go back down.
- When you find the best mortgage, consider a mortgage rate lock to prevent the interest rate from rising before you close on a home.
Widen your home search.
If your preapproved loan amount and the going rates of homes in your area of preference aren’t matching up, take a step back and consider whether other neighborhoods might also fit your needs. Expanding your search could help you check off more of your boxes—a bigger yard, more bathrooms, larger bedrooms—while potentially saving you money.
Also, getting a home in an up-and-coming neighborhood vs. an established one doesn’t just save you money now. If home prices in your new neighborhood rise in the coming years, you could turn a nice profit.
Your real estate agent will be able to make wonderful suggestions to you based on your general location goals and housing needs and wants. At Showcase Properties we are regional experts in all the local enclaves and districts in Gainesville and Ocala—and Alachua and Marion counties at large. Lean on us to help you expand your search and discover new corners and hidden gems in Central Florida!
Be more attractive to sellers (and lenders).
Making yourself attractive to lenders is essential to getting the best rates for home loans, which means more home for your dollar. There are no shortcuts to being truly creditworthy, but there are a few things you can do in the near future to help. Firstly, if you’re planning on buying a house in the next year, squirrel away as much money as possible for a down payment. The size of your down payment could play a huge role in your approval for a loan, and it can also have two other possible outcomes: you could possibly afford a larger house, or you could have lower monthly payments. Secondly, avoid taking out any new debts: loans (hold off on getting that new car!) or credit cards (throw away those offers!). The amount of debt you have plays a role in how much lenders are willing to loan to you—all your debts, including your mortgage, should be below 45% of your income. Thirdly, try to improve your credit score, particularly if it’s slumping.
Approving your credit score instantaneously isn’t possible, but there are things you can do to give it a bump—and even a modest increase could push you over the lower score limit for certain loan products! If you have a longer chunk of time to work with, you could improve it even more. While this list is not exhaustive, here are a few things you can do to increase your score:
- Lower your credit utilization. Reduce your usage of credit cards to 30% or less of their limits, and if you have cards with large balances, work to pay them down.
- Don’t close accounts. This will reduce the amount of credit available to you, which will in turn, increase your credit utilization.
- Start paying your bills on time. If you have a history of late payments, correct it now. Your most recent payment history matters the most, so a year of on-time payments can make a difference.
- Correct errors on your credit report. Obtain a copy of your credit report from the three reporting agencies through annualcreditreport.com. If you notice any discrepancies, follow the Consumer Financial Protection Bureau’s advice for how to fix them.
Making yourself enticing to sellers is also a huge part of securing a home—especially in a tight market. This will involve making your offer stand out among the crowd, and you can do this in a number of ways. Having that solid preapproval letter in hand is essential in convincing them that your offer is the right one to accept. While almost all offers include a financing contingency (if a buyer doesn’t secure a mortgage, they can walk away), if a seller has any reason to truly believe you don’t, they will likely go with another offer. The preapproval will also mean less time to closing. And anything else you can do to speed up the process will look appealing to sellers. This might include waving an inspection contingency, which allows you to conduct your own inspection, but doesn’t allow you to back out if something major is found. And finally, be prepared to go over-asking (more on this below).
Consider other property types.
The flips side to considering different neighborhoods is considering a different kind of home altogether. For instance, you could: Consider a smaller home. How much will you actually use that guest bedroom or bathroom? Do you really need a big yard? Negotiating on some ‘wants’ to get the things you need might be essential in a tight market with high inflation. And remember that the bigger your home, the more everything will cost; you’ll face higher utility bills, landscape maintenance costs, higher taxes and insurance, and have to pay more for new furnishings. Inflation will affect all these expenses, as well.
Consider a condo over a single-family home. Condos in Gainesville and throughout Alachua and Marion counties can afford you many amenities at a lower entry-point. They can also save you money in other ways: more greenspace without the maintenance, lower utility bills, fewer upkeep costs, and proximity to work, schools, and the services and establishments that you frequent, meaning less time commuting and lower gas bills, too.
Handy? Consider a fixer upper. If you’re not willing or able to negotiate on location or size, but have some basic home-improvement skills, it may be worth your while to buy something that needs a little bit of work. In order to get a mortgage, the home can’t be a total overhaul (unless you can put in an all-cash offer!), but this also means that the scale of improvements might be more manageable. And when you’re ready to sell, you could find yourself with a nice payoff!
Patient? Consider building a home. If you’re not finding the right home, or frustrated with being outbid, you may want to consider building a new home. While building a home from start to finish can take a year or longer, if you aren’t in a rush to get into a new house and are looking for specific customizations that aren’t available in the general market, it could be a good choice for you.
Be open to negotiation.
Sellers often will expect more money for a home than the list price in the current market. If a property is already at the top of your budget, it might be a long shot that your offer is accepted, especially as the most desirable homes are still seeing multiple-offer situations due to low housing stock. Sticking to homes slightly below your high end, however, will give you the wiggle room you might need to win a bidding war. We talked about other ways to make your offer attractive to sellers above, but often it boils down to what you are willing to pay.
That doesn’t mean that every listing will sell in a bidding war. Homes that need a little bit of work or have customized features that don’t meet everyone’s tastes might linger on the market long enough for sellers to accept lower offers. And as the market cools, sellers may start becoming more open to negotiation. But at this time, it’s important to consider negotiation a rule rather than an exception.
Make sound decisions.
If you do your homework—researching homes, calculating your budget, and getting preapproved—you should be able to make a sound decision, when the time comes, even if you have to make that decision quickly. Buyer’s remorse is common in a hot market, and while ours is cooling, you will still face competition. Even though housing stock is low, there is still a steady stream of new homes hitting the market—another one will come along. Don’t buy a house that you’re not sure of because you’re afraid of losing it.
However, that doesn’t mean that you have all the time in the world to make decisions. Hopefully, all your preparation will mean that when the right home comes along, you’ll know it, and be prepared to make a competitive offer on a short turnaround.
We talked about how to make enticing offers to sellers above, but it’s important to note that these offers should also keep your own interests in mind. Waiving inspections on a home is a risky endeavor and should only be done in certain circumstances—for instance if the previous offer fell through and the inspection report is available, or you have the funds to handle issues that might arise down the line. Don’t go so far above asking that the mortgage company appraisal will create problems for your home loan application, or your home is ‘underwater’ (worth less than your loan). And lastly, don’t let your competitive streak get out of hand, making you fight for a home that isn’t right for you.
Today, it takes longer to buy a home than it did just a few years ago. Expect that some of your offers might not be accepted. Expect that the current housing inventory might not have the best selection. Know that research today might be more exhaustive than in the past. And if you need to take steps to get financially ready for homeownership, whether improving your credit, taking homeownership classes, or saving for your down payment, be realistic about how long it will take. The right home for you is out there, even if it takes a little longer to find it.
Work with an experienced real estate agent.
Although we’ve mentioned this before, it bears repeating. With high home prices and tighter budgets, now more than ever it’s important to contact a real estate agent who has lots of local market experience. An experienced local agent will be able to guide you through determining your budget, selecting the right neighborhood, home size, and type, notifying you of new homes as soon as they hit the market, and when the time comes, making a strong and sensible offer using market knowledge and research. More than just assisting you in the process, they can lead you through it, avoiding market pitfalls and helping you make sound decisions.
Whether you’re moving to the area from out of state, or just moving across the neighborhood, our Gainesville and Ocala real estate agents are knowledgeable, friendly, and eager to help you navigate the changing markets. Interested in homes for sale in Gainesville? Reach out to one of our Alachua County Real Estate Agents. Looking for homes for sale in Ocala? Our team of Marion County Realtors are here to help!