For many would-be homebuyers, 2021 was exasperating beyond belief. Especially frustrated were those who lost out to other buyers in round after round of bidding wars.
“Last year was the Wild West for buyers. Competition was fierce, and property values kept rising. It was the worst year I had ever seen,” says Mark Goldberg, a veteran real estate agent in Maryland.
The theory is that 2022 should be better for those still struggling to buy a first home. Even so, housing analysts note that the financial barriers to entry into homeownership remain high.
“The average wage-earner can still afford the typical home across the United States. But the financial comfort zone continues to shrink as home prices keep soaring and mortgage rates tick upward,” says Todd Teta, a senior executive at Attom Data, which tracks property markets throughout the country.
Although mortgage rates are still hovering near historic lows, they have increased in recent weeks due in large measure to steps taken by the Federal Reserve to combat inflation. Moreover, economists foresee further rate increases as the year progresses.
Of course, homebuyers able to secure a property are always well advised to shop for the best available mortgage rate and terms. To do this, Richard Harty, a realty company owner in the Chicago area, advises buyers to consider local lenders.
“If you are buying your first house, it’s a great idea to meet with the lender, whether by Zoom or in person. It is always good to put a name and a face together,” says Harty, president of the National Association of Exclusive Buyer Agents (naeba.org).
Alex Margulis, a vice president at Cross Country Mortgage, an Ohio-based lender, urges borrowers to consider more than one company before going through the formal mortgage application process.
“Once you’re ready to commit, compare rates with all the lenders on your short list and reach out to all of them on the same day for rate quotes. The market moves very fast, and you want to be sure you’re comparing apples to apples,” Margulis says.
He also advises borrowers who “don’t have a stomach for volatility” to consider locking in the rate they are offered at the time of application rather than letting their rate float -- especially if they believe rates are likely to rise in coming days or weeks.
“Rates go up like a rocket and drop like a feather,” Margulis says.
Here are a few other pointers for mortgage borrowers:
-- Rely on referrals to select a high-quality lender.
Guy Cecala, the CEO of Inside Mortgage Finance, a financial publisher that tracks the lending industry, says real estate agents are in a good position to know which lenders will offer the smoothest and swiftest loan processing. After all, agents work with lenders year after year and need to identify those most likely to get their deals to the finish line on time.
Though mortgage brokers, who shop your loan application to multiple lenders, are now fewer in number, many home loans are still being made by financial institutions.
“Contact at least three different types of lenders before making your selection. Try to include on your list one mortgage broker, one major bank and one smaller bank or credit union,” Cecala says.
-- Wait to provide your Social Security number until you’re ready to apply.
Of course, no quality lender will guarantee that your mortgage rate has been locked in without first pulling your credit scores. But that doesn’t mean you should give out your Social Security number (the key to pulling your credit scores) while you’re still doing comparison shopping.
“If you walked into a supermarket and the grocer wouldn’t tell you the price on a can of peas without your credit score, you’d walk right out the door. That shouldn’t be any different with a mortgage,” says Keith Gumbinger, a vice president at HSH Associates, which follows the mortgage industry.
-- Attempt to avoid paying excessive lender fees.
There are several costs and fees involved in mortgage processing, but only some of them are imposed by lenders. These lender-based fees include the cost for a home appraisal and a copy of your credit report. Also, other charges -- informally known as “junk fees” -- are imposed by the lender.
To better protect consumers, the U.S. Department of Housing and Urban Development (hud.gov) tightened the rules to let borrowers compare lenders based on their charges. As a result, HUD now requires lenders to give borrowers an early and accurate listing of their closing costs.
But Gumbinger says it’s up to consumers to carefully compare a lender’s charges before deciding whether to proceed. To do this, it’s important to study a copy of the lender’s estimate of closing costs. This should list all the fees you’d pay at closing, with a very small margin for changes. The lender must give you this estimate shortly after you apply for a mortgage.
By carefully reviewing your estimated fees, you’ll have a chance to ask for lower charges or to change lenders to get a better deal.
Though mortgage lenders face ever stricter disclosure requirements in recent years, their fees have also climbed because of their heavier workloads, according to Gumbinger.
“Remember that what constitutes a junk fee -- versus a legitimate business charge -- is always in the eye of the beholder,” he says.
(To contact Ellen James Martin, email her at firstname.lastname@example.org.)