Being a mortgage loan originator, I get asked the same questions all the time by friends, family, and people that find out what I do. “Is the market going to crash? Are rates still low? Should I refinance? Is now the time to buy? Do you have any tips?” The easy answer is “No, yes, maybe, yes, and yes!” but let me shed some light on what homebuying looks like in 2022.
As the market has slowly become favorable for sellers, the shock of the pandemic is wearing off, and inflation is on the rise, purchasing a house is starting to feel impossible for some. There is a shortage of homes available on the market and most homes being sold are going under contract very quickly with multiple offers. Sellers are not having to pay closing costs in many situations. Conventional loans and cash offers are favored. Rates have gone up. However, I am here to tell you it is not impossible and give you all the tips I can from my experience as an MLO.
Will The Housing Market Crash?
All signs point to no, the market is not going to crash in 2022. We are experiencing economic growth, interest rates are rising, and the housing market is seeing a shortage of inventory. This is different from the major crash of 2008 and things are not heading in the same direction. In order to have a “bubble” to pop, we would need an overage in properties, either in foreclosed homes or houses just sitting on the market; we have neither of those. If you are waiting for the price of houses to go down, that unfortunately is also not likely to happen. If you are in the market to buy, try to do so sooner rather than later.
Interest Rates On The Rise
We have gotten majorly spoiled over the last two years with these historically low-interest rates. In 2020, loan originations grew by a whopping 65% over the previous year. This was largely due to the refinance boom that we saw as rates dipped into the 2s. People were able to cut their rates by 1-2% saving a substantial amount of money both monthly and over the life of their loan. Refinancing is still worth looking into if you have anything over 5% for sure.
Rates dropping below an average of 4% & staying there has only happened twice since the 1970s. While rates have risen since the beginning of 2022, they are still considerably lower than in decades past. If you are waiting for them to drop back down to the 2020 level unfortunately there are no signs that will happen anytime soon. Do not hold out on purchasing your new home in hopes you will be getting a 2.75%, you will be disappointed. Now is the time to buy if you are looking to take advantage of these low-interest rates.
This means having everything ready to go and in line. You should have two years of W2s, 60 days bank statements, 30 days’ worth of check stubs, and your license/social security card handy. If you are self-employed, you will need two years of tax returns (remember, your income is based on your adjusted gross – you can’t write everything off!) Any large cash deposits in the last 60 days will need sources and receipts. No gaps in employment longer than 30 days in the last two years. Credit card balances at 30% usage or less. Having all of these things in order will help you get pre-approved quickly & completely. You are a key factor in your home purchase happening!
Choosing The Right Lender
In this competitive market, everything you do will matter. Your first stop in the homebuying process should be your lender. There are a few important things you need to remember when choosing a mortgage originator to work with.
Are they local? When you are in a multiple offer situation, having a local reputable lender write you a pre-approval letter will give you a leg above someone using an online lender from a large call center. Your realtor and you should be able to meet with your lender & also get in touch with them at all necessary times!
What kind of support and turnaround time does your lender have? Are they closing most of their loans in 30 days or less? Everything we do is very time-sensitive and you need to make sure that things will be moved along quickly. Asking for long contracts and avoidable extensions is not the situation you want to find yourself in.
Are you left with questions or feeling completely confused? You shouldn’t be. Loan originators are there to explain exactly what you need to know and take care of what you don’t. If you feel like your lender is not properly explaining the loan programs, the process, or answering your questions; don’t depend on them to give your loan the attention it deserves. They should go over all your program options and financial information before issuing you a pre-approval letter. I cannot stress the importance of communication from all parties involved in the process!
Insurance – Play it Safe
Shopping insurance rates is an important factor when purchasing a new home in 2022 and beyond. After the area gets hit by back-to-back hurricanes and flood policy increases, we are not looking at any relief coming in this area. Some flood policies can be assumable at the act of sale, but there are many homeowners (incredulously) who still do not carry flood policies. To get a true idea of what your mortgage will be, make sure you are getting a quote immediately when you want to write an offer or go under contract. This is something I do for my clients as a courtesy and I have a network of great agents that I trust. Take note of what your storm deductible & coverage are, all policies are not created equal. Googling the carrier is also not a bad idea, as we saw a number of insurance companies go bankrupt due to hurricane claims this year.
Realtors Are Your Rock
Having a professional, knowledgeable realtor will make or break your chances of getting into your new home in a market like this. While using a friend or family member is great, if they are not well versed in the area or an experienced negotiator that can cost you time and money – maybe even the house of your dreams! Buyers are finding themselves in multiple offer scenarios and intense negotiations right now, and you want your agent to always have your best interest at heart. The New Orleans area is filled with amazing realtors to choose from, you should have no problems finding someone excellent to work with around here.
Moving On Up
The housing market is looking to remain relatively steady this year, and if you take all the proper steps it could be the year that you also buy a new home! Being prepared, having the right team, and arming yourself with all the information you can will be the key to your castle. Happy & Hopeful House Hunting!
Great advice Dana. Especially for the business owners out there that have a lot of write offs.