Your Next Home Purchase: A How-to-Guide for 2024

For many people, the first home that you buy is a stepping stone because if done right, it can be a powerful tool for your next home purchase. Your next home or second home could be bigger, in a better location, or your dream home. But there are 5 things you need to know if you’re buying your next home in 2024.

How to Use Your Equity

The most important tool as a homeowner is something you didn’t have when you bought your first home and that’s equity – this is the difference between what your house is worth and what you owe on it.
This is like your war chest, and if you’re buying a house in 2024, you’ll need it. 

This equity will be an important factor for your upcoming mortgage qualification and it will also determine what kind of offer you can put in. In a best case scenario, you would potentially be selling your home and have so much equity that you essentially pay cash for you next house. Assuming you don’t have that much equity, you’ll want to use your equity wisely. That could include using it for your down payment and other things like appraisal guarantees or paying off debt.

Sell Now or Sell Later

Should you sell now or sell later? In other words, are you going to make a contingent or non contingent offer on your next home. If you need your equity to buy the next house, you might be making a contingent offer; an offer to buy assuming you are able to sell your home first. You can sell before you buy or you can sell and purchase, closing on both transactions on the same day. This is common, however you should know it’s considered a less competitive offer to your seller.

You can make a non-contingent offer, which is typically a more competitive offer. You just have to be qualified with both mortgage payments and you need to come up with your down payment and closing costs. The minimum down payment on your next home could still be as little as 3%, however for most people using a conventional loan, you’ll probably put as little as 5% down.

But you wanted to use all that equity to put 20% down, avoid mortgage insurance, and have a low payment? You can still do that after the fact and it’s called a “recast.” This is when you take out the new mortgage and put 5% down, then sell your old house after the fact, and apply the proceeds to your mortgage. Let’s just say another 15%, which gets rid of the mortgage insurance, and recalculates your mortgage payment to a lower amount.

Plan Ahead

Making decisions ahead of time will save you a headache later; like when you want to sell, whether your willing to make any repairs to your house, decluttering, cleaning and getting your home show ready. Let’s not forget, determining how much you can sell your house for and estimating the costs involved, like realtor fees, closing costs, and seller concession.

Your realtor can give this to you in a net worksheet and this will give you a better idea of how full your war chest will be. I think 2024 is still going to be a sellers market in general, this depends on where you’re located, east, west, midwest, or the south. It even depends on your city or even neighborhood – real estate is hyper local. Which is why it’s important to work with a good local agent and lender.
But remember you’re on both sides of this transaction now, so while it may be easy to sell, buying is still going to be a challenge

Set Expectations

In addition to being a prepared seller, how do you ensure that you’re going to be a successful buyer at the same time? Well, you might be more confident, but you also want to set reasonable expectations. Even though you might be looking for your dream home or forever home, don’t expect to find the perfect home. 

Regardless of the price range, there’s going to be out dated kitchens and bathrooms, old windows, old roofs, utilities and appliances that need to be replaced and other things you want to do to the home. You’ll want to set some of your proceeds aside to deal with these costs.

You should probably expect higher mortgage rates, costs, and fees than when you purchased your first home since a lot has changed since then, even if that was only a couple years ago.  Obviously rates are higher, but even closing costs, title fees, taxes and stuff like that have been on the rise. But so has the value of your home, so who can complain!?

How to Make a Successful Offer

 
You should still expect that you need to act quickly when you find a house that you like. The market’s not as crazy as it was when rates were 2% but there is still a lot of demand out there and very limited supply in most areas. Therefore you should expect multiple offer situations and the need to be aggressive. I mean make strong offers, which include but not limited to, offering over asking price, including appraisal guarantees (in case your appraisal comes in low), non refundable earnest money, or waiving inspections.

You can’t make a strong offer without a strong pre approval. I know this isn’t your first rodeo but you still need to get pre-approved by your bank or lender. It is to your advantage to do this ahead of time so you know what kind of offer you can make. Your mortgage qualification is still going to be based on your income, credit, assets, liabilities, and employment history. When buyers do this ahead of time, they avoid scrambling last minute there’s no last minute surprises. Spoiler alert, those surprises are never good!

If you follow these steps, you’ll be much better prepared to purchase your next home, and hopefully you’re better prepared than the next person whom you’re competing with. Taking a little extra time upfront will be totally worth it if you are purchasing your dream home, or a house in that awesome school district, closer to work or whatever that next home means to you.

Word of Advice

If you’re someone who doesn’t have a lot of saving set aside and you’re getting a bunch of sale proceeds, you might want to set some of that aside for a rainy day instead of putting everything into your next house because it’s not very liquid at that point. If you have an emergency or lose your job or something unexpected, you want some cash on hand for stuff like that.

If you have debt (credit cards, personal loans, car loans, even student loans), this might be a good time to pay off some of that stuff with your sale proceeds. You can get rid of a lot of those monthly expenses by paying that stuff off after your sale. This will offset that higher monthly payment on your dream home and ensure that you’re not over extending yourself. Plus it just feels really good to get rid of that debt.