Being confident and competitive in a volatile housing market
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The housing market today remains volatile, characterized by inflated home values and a competitive landscape that challenges prospective buyers.
How did we get here? Interest rates hit historic lows immediately following the COVID-19 pandemic, leading many homeowners to refinance to very low rates. Now with rates two to three times higher than their refinanced rate, homeowners are staying put — creating a limited inventory of existing homes for potential buyers. New home builds are on the rise, but currently can’t keep up with the demand.
This is a seller’s market, meaning buyers must be savvy to get the upper hand. Here are some strategies and alternative funding sources to help buyers navigate and succeed in this market.
Strategies to Stay Competitive
- Leverage home equity: For current homeowners, tapping into the equity in your home through a Home Equity Line of Credit (HELOC) can provide a significant financial advantage. A HELOC is a credit line secured through the equity you’ve built in your current property. Often, HELOCs have an initial interest-only period, which is typically 10 years. After the first 10 years, the payment fully amortizes to principal and interest. At the end of the loan term, you only pay back what was borrowed. HELOCs can be used to make improvements to your current home and increase its value or used to invest in another property.
- Increase your cash on hand: In a seller’s market, having cash readily available can make a significant difference. Cash offers are more attractive to sellers seeking quick and secure transactions. Ensuring you have liquid assets can put you ahead of other buyers who rely solely on financing. Hammering down on high-interest debt, cutting discretionary spending and maximizing your after-tax pay by contributing to tax-advantaged retirement accounts and claiming eligible tax deductions and credits can all increase your cash reserves.
- Improve your credit score: A strong credit score not only increases your chances of mortgage approval but also secures more favorable loan terms. Aim for a credit score of 720 or higher. If your score is lower, take proactive steps to improve it by paying down debts, making credit card payments on time and correcting any inaccuracies in your credit report.
- Explore homeowner grants and relocation packages: Some cities and towns will actually pay you to move there. Relocation grants and perks vary across the country, but Indiana has several communities that are willing to give qualified applicants thousands of dollars in cash to relocate. Financial assistance is also available through various state and federal grants. Talk with your realtor or financial expert to see what is available in your area. Utilizing such resources can help bridge the gap between your savings and the necessary down payment.
By implementing these strategies, buyers can navigate the competitive housing market with greater confidence and success. By leveraging professional advice, improving financial health and exploring alternative funding methods, buyers can position themselves more competitively.