As a second-time home buyer, you’re entering the home-buying process with experience on your side. You’ve been around the block before – literally during house hunting and metaphorically with taking your loan from initial approval to closing! You even have some homeownership knowledge under your belt.
However, whether it’s been seven or 17 years since you’ve purchased a home, there have recently been quite a few changes in the home-buying process that you may be unaware of.
The number of changes in market conditions, mortgage qualification process and even real estate might be enough to make your head spin, but we’ve got your back. Let’s discuss what you can expect when you’re buying a home for the second time.
How the Home-buying Process May Have Changed
The housing market is not the same market that it was 10 years ago. It’s not even the same market as a few years ago – interest rates are low and home values are high.
Changes to the Market
Current mortgage interest rates have been holding near historic lows, with the current rate on a 30-year conventional loan still under 5%.
“Anyone who is in the market now, versus 10 years ago, will notice significantly lower interest rates,” observes Doug Gartley, Associate Broker at In House Realty. “This means more buying power for the potential home buyer, as lower interest rates mean lower down payments and lower monthly mortgage payments.”
However, just as the mortgage interest rates remain relatively low, the current market inventory is also at its lowest record point since 1999. This, combined with ever-increasing home values (we’ll talk about that next), has slowed down the home-buying process for some.
“The previous home buyer might not have been faced with inventory challenges that are happening today,” explains Gartley. “For a long time, the markets were going back and forth from a buyer’s market to seller’s market, and while we were looking at four – seven months of inventory, today there’s less than a 30-day supply. This means it’s extremely challenging for current buyers in market, as there are limited options.”
Factors of low inventory can be attributed to the fact that most homeowners are staying in their current home for longer periods of time. Negative equity has also been a burden to current homeowners, as many owe more on their home that it’s worth to sell.
A combination of low inventory, and the anxiety of rising interest rates have stalled the current home buyer in fear of not finding a home before interest rates rise over 5%.
However, new to the market is the RateShieldTMApproval||, a new feature of our Power Buying ProcessTM which allows home buyers to lock the current market interest rate for up to 90 days while they look for a home – a relief in a low-inventory market, as it might take longer with the current inventory to find the perfect home.
If you’re reentering the home-buying process and might be feeling anxious about the prospect of rising interest rates in a low inventory market, it’s a good time to get started online and lock your rate.
The Cost of Buying a Home
Hand-in-hand with the current low home inventory in the market is the increase in home values, which have increased over 8% this year. The lack of available homes, along with a growing economy, has caused price growth on homes to increase rapidly.
In fact, the median home value in the United States is currently at $216,000, according to the most recent data on Zillow.
A natural increase in home values wouldn’t be such an issue if current wages reflected this inflation. However, home values are rising much faster than wages, which only rose 2.6% in 2018, meaning potential home buyers might not only have a hard time finding a home, but affording one as well.
This might pose a problem for those currently reentering the home-buying process, as the median household income has suffered. In 1998, the average income was $38,885; adjusted for 2017 inflation, that number would rise to $58,487. The most recent 2017 data shows that the average income was only $59,000.
As you’re reentering the home-buying process and looking for your next home, be wary of the hidden costs of buying home that you may have not encountered when buying your current home.
For example, if you’re downsizing to a retirement home or moving to a home that has a homeowners association, know that there will be fees that come along with the new home. While they do have advantages (snow removal, yard maintenance and more) the costs might outweigh the benefits of moving into a neighborhood or facility with an HOA.
Changes to the Mortgage Qualification Process
For those who purchased their current home before 2008, the aftermath of the financial crisis changed the way lenders conducted loan qualifications. In some ways, qualifying for a mortgage became more stringent after 2008.
For example, while mortgage investors have always considered credit scores as a means to qualify for a home loan, they’ve become more stringent with credit scores when determining an interest rate.
Based on the lender, the type of loan you’re applying for, as well as your income and debt levels, the credit score you need in order to obtain a loan may vary. However, the higher the credit score, the lower interest rate you might receive on your mortgage, which will ultimately save you money on monthly mortgage payments.
The debt-to-income (DTI) ratio is another thing that has been revolutionized since 2008. Whereas before, you were able to have a maximum amount of 50% DTI, in general, lenders now look for a DTI around 43%.
If you have a higher DTI, usually having a high credit score and high down payment can still help you qualify for a loan, but it will also vary depending on what type of loan you get (conventional, FHA, VA).
The most significant change in the mortgage qualification process is that you’re now able to get qualified completely online.
“Another concept that’s new to the home-buying process is Rocket Mortgage,” says Gartley. “This is beneficial for consumers because they can get a quality approval in a short amount of time, which will ultimately help the buyer to navigate through the home-buying process quicker.”
Also new to the process is a Prequalified Approval, another layer of the Power Buying Process. During a Prequalified Approval, the home buyer’s credit is verified, as well as their monthly debts and an estimate of their income and assets.
This is the preliminary step to a Verified Approval,§ where clients have their credit pulled and submit documentation of their income and asset statements (W-2s, tax returns, bank statements and pay stubs) in order to be verified for a loan. This process can be done completely online through Rocket Mortgage and can be completed in less than 24 hours.
House Hunting Changes for the Second-Time Home Buyer
Changes to the house hunting process can be summarized in one word: technology. Today’s home buyers are tech-savvy and independent. In fact, 42% of recent buyers took the first step in the home-buying process by searching for properties for sale online.
House Hunting Today
Technology, third-party real estate websites and social media have changed the way potential home buyers look for homes and real estate agents.
Platforms like Zillow have real-time data of available listings, including interior features of the home, listing price and even estimated home value. While Zillow can give you a base for your home research, it’s still a good idea to contact a real estate agent to navigate you through the home-buying process. Even advances in technology can’t replace years of real estate experience.
“It’s always good to start your preliminary research online, but when you get to the point where you’re ready to walk through properties, a good buyer’s agent can answer your questions and have directly access to the Multiple Listing Service (MLS),” says Gartley.
This is especially true for those second-time home buyers who are looking to purchase a second home or vacation home. Gartley suggests to look for agents who have specific designations through the National Associate of REALTORS® (NAR), where you can find property specialists in those specific areas.
“If you don’t use a designated real estate professional, you might end up paying more than you did previously in cost of living,” warns Gartley.
Real estate agents are also becoming more tech-savvy, and most can be found on social platforms. They’ve even revolutionized the home tour with virtual tours, allowing a potential home buyer to view homes in the comfort of their own home instead of physically going house to house.
Home Features and Upgrades to Consider
Speaking of technology, energy efficient utilities and appliances are what current home buyers seem to be looking for in a home. Young first-time home buyers claim they would pay more money on a home that had green/ energy efficient features.
Besides positively impacting the environment, energy efficient homes are also appealing to home buyers because of the energy savings that ultimately save money on utility bills. Because of the increasing appeal, most new homes are being built with energy efficiency in mind and include features like:
- LED lighting
- High-efficient heating and cooling
- Energy efficient appliances and utilities
- Smart thermostats
- Smart irrigation
“Energy codes change every three years,” explained Gartley. “These changes made significant improvements for new homes built back in 2008 and 2009. New home improvements, combined with new smart home technology utilities, can easily save homeowners 50% more, compared to homes that were built 30 years ago.”
Another trend that home buyers are seeking in homes is smart home automation, the ability to control all of the technology devices in a home, including appliances, in a centralized, automated hub.
Just like energy efficient homes, the interest in tech-automated homes has grown so much in popularity that it’s become more cost effective to install or buy this type of technology in a new home.
Buying Your Home While Selling Your Current One
Lastly, you may be selling your current home while going through the home-buying process. The good news is, it’s a seller’s market. As we discussed earlier, there’s a low amount of inventory and an influx of home buyers entering the market.
This works in your favor as selling your home for a decent price might not be your biggest hurdle. In fact, selling your home before you’re able to purchase a new one could be the issue to worry about.
If you’re looking to buy a home before you sell your current one, you’ll need to be able to finance both the new home, as well as your current one (until it sells). However, you’ll need to decide if you can afford to finance two mortgages until your sell your current home.
You can also make a provision in the purchase agreement of your home that says your offer is contingent on the sale of your previous home. However, with how fast homes are entering and exiting the market, a seller could choose to sell their home to another buyer without contingencies.
If you’re getting ready to buy a home for the second time, make sure you talk to a banker about your plan to purchase a new home. You can also get started online with Rocket Mortgage® by Quicken Loans®.
Do you have any insights for second-time home buyers entering the market? Share your thoughts in the comments below!
||RateShield Approval locks your initial interest rate for up to 90 days on 30-year conventional, FHA and VA fixed-rate purchase loan products. Your exact interest rate will depend on the date you lock your rate. Once you submit your signed purchase agreement, we’ll compare your rate to our published rates for that date and re-lock your interest rate at the lower of the two rates for an additional 40 to 60 days. Additional conditions or exclusions may apply.
§Verified Approval within 24 hours of receipt of all requested documentation. Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, debt, property, insurance, appraisal and a satisfactory title report/search. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Quicken Loans’ control, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close, you will receive $1,000. This offer does not apply to new purchase loans submitted to Quicken Loans through a mortgage broker. Additional conditions or exclusions may apply. Verified Approval within 24 hours of receipt of all requested documentation.
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