UPDATED: May 19, 2023
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 – during house hunting and by taking your loan from initial approval to closing. You even have some homeownership knowledge under your belt. However, there may have recently been some changes in the home buying process since then that you’re unaware of.
From emerging real estate technology to housing supply shortages, the current real estate market could be vastly different compared to the conditions under which you bought your first home. Here are some of the biggest changes you’ll notice as you start shopping.
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.
In 2023, home buyers and sellers experienced a seller’s market, meaning that demand for housing far exceeded the low inventory. Housing market trends for 2024 anticipate continued high demand, a lack of inventory (for both resale and new construction) and increased house prices.
Compared to your previous home purchase, you may face more challenges with inventory. Homes that are listed will sell quickly, and competing buyers may be willing to forgo contingencies or make an all-cash offer.
If interest rates decline in 2024, you could have more buying power. Lowering interest rates make borrowing money less expensive for home buyers. Mortgages will be no exception. For home buyers, declining interest rates may lead to lower average monthly mortgage payments, so you should budget accordingly.
Hand-in-hand with the current low home inventory in the market is the appreciation of home values. The lack of available homes, along with growing demand, has caused price growth on homes to increase rapidly in recent years.
As you’re reentering the home buying process and looking for your next home, you should also be wary of the fees tied to home buying 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 (HOA), you should 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.
For those who purchased their current home before 2008, the aftermath of the financial crisis changed the way lenders assess loan qualifications. In some ways, qualifying for a mortgage became more stringent after 2008.
Consider the following ways home buying requirements have changed.
While mortgage investors have always considered credit scores 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, and your income and debt levels, the credit score you need to obtain a loan may vary. However, the higher the credit score, the lower the interest rate you might receive on your mortgage, which will ultimately save you money on monthly mortgage payments.
The debt-to-income ratio (DTI) is another requirement that has been revolutionized since 2008. Whereas before, you were able to have a maximum amount of 50% DTI, in general, lenders now are willing to accept a DTI of up to 57% for certain types of loans.
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 this will also vary depending on what type of loan you get (such as a conventional, FHA or VA loan).
The most significant change in the mortgage qualification process is that you’re now able to get preapproved completely online.
“Another concept that’s new to the home buying process is Rocket Mortgage®,” says Doug Gartley, a real estate agent with Rocket Homes℠. “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. 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,1 where clients have their credit pulled and submit documentation of their income and asset statements (W-2s, tax returns, bank statements and pay stubs) to be verified for a loan. This process can be done entirely online through Rocket Mortgage and can be completed in less than 24 hours.
Let’s look at a few strategies you can use to simplify your second home buying experience.
There’s a good chance your financial status has changed since your first home purchase. If that’s the case, you may find that a different loan option works better for your current situation.
Take a look at these popular types of mortgage loans and the advantages they offer for second-time home buyers.
Compared to their first time buying a home, many homeowners have had more time to boost their credit score and build up their savings for their next down payment. Conventional loan borrowers with a high credit score often enjoy affordable financing and low down payment solutions. If you’ve made strides to improve your financial health, a conventional loan could be the best option for you.
Contrary to popular belief, FHA loans are not exclusive to first-time home buyers. So long as you meet the Federal Housing Administration’s requirements, you can finance your home with the low down payment, low interest rates and other benefits that the FHA offers borrowers.
Eligible U.S. veterans, active-duty service members and surviving spouses who are shopping for their next home may consider a VA loan. The U.S. Department of Veterans Affairs places no limits on the number of VA loans that eligible borrowers can use during their lifetime. Lower interest rates, zero money down and no private mortgage insurance requirements make using a VA loan for your second home an attractive option.
First-time home buyer programs help make home buying more accessible to those who want to make the leap to homeownership. But are there programs or grants for second-time home buyers?
The answer is yes. Though some home buying grants are exclusive to first-time buyers, other factors can be used to determine your eligibility. Check HUD’s local home buying programs guide to find programs that are sponsored by your local government or other organizations.
Even better, you may still qualify for first-time home buyer programs, even if this isn’t your first home purchase. A first-time buyer is defined as someone who is interested in buying a primary residence and has not held any kind of ownership in a residential property for at least 3 years from the date they close.
Speak with a real estate professional if you’re unsure of your eligibility.
Compared to your first home purchase, buying your next home comes with one other distinct advantage: established home equity. When you sell your first home, you’ll receive all the equity you’ve built up in the home, minus the costs of selling a house.
When you’re ready to buy your second home, you can leverage that equity to make a sizable down payment, which can lower the principal amount you’ll owe, score you a lower interest rate and reduce the total amount you’ll pay in interest payments over the life of the loan.
Changes to the house-hunting process can be summarized in one word: technology. Today’s home buyers are tech-savvy and independent. In fact, 41% of recent buyers took the first step in the home buying process by searching for properties for sale online.
Technology, third-party real estate websites and social media have changed the way potential home buyers look for homes and real estate agents.
“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 direct access to the multiple listing service,” 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 looking for agents who have specific designations through the National Association 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.
Speaking of technology, energy-efficient appliances and utilities are what current home buyers seem to be looking for in a home.
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:
Another trend that home buyers are seeking in homes are smart home devices, which includes the ability to control all technology devices in a centralized, automated hub.
Just like with 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.
Although current homeowners will be mostly familiar with the home buying process, today’s significant shifts in real estate technology, as well as the housing market and the opportunities available to second-time home buyers, are worth factoring into your buying strategy this time around.
If you’re getting ready to buy a home for the second time, make sure you talk to a Home Loan Expert about your plan to purchase a new home. You can also get started online with Rocket Mortgage.
¹Verified 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 Rocket Mortgage 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 Rocket Mortgage 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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