Many homeowners who need to make a move may be reluctant to sell their homes because they have a low interest rate and will pay a much higher price for their next home, as well as a higher interest rate in today’s market.

Renting out an existing home and buying another property is an attractive option—if you play fairly with your lender. Some purchase loans aren’t available to investors—such as FHA and VA-guaranteed loans—and are only for owner-occupants, while investment property loans require larger down payments and charge higher interest rates. Trying to buy a property while hiding the fact that it’s a rental could result in your loan being called due.

You can buy a home with owner-occupied financing and turn your home into a rental with little risk of penalty if you do the following:

• Occupy the home for at least 12 months, as agreed in the loan documents. Frequent applications for new owner-occupied financing every few months will make underwriters suspicious.
• Use the same mailing address as the property.
• Be prepared for lender scrutiny with a logical explanation, such as a job change, or moving closer to family, if you have other, nicer properties and seek owner-occupied financing for a lesser quality home.
• Don’t refinance your owner-occupied home to pull out equity to use as a down payment on the next home and then finance your next home as an owner-occupant unless you intend to actually occupy the home for 12 months or more.

Lack of supply in the resale market is favorably impacting new home sales. In September 2023, the pace of new home sales was up 33.9% year over year to a seasonally-adjusted rate of 759,00 units. The median new home sale price in September was $418,800, down 12.3% compared to a year ago, largely due to builder incentives and a shift toward building slightly smaller homes. Meanwhile, existing, or pre-owned home sales sank 15.4% from the previous year, yet existing home prices rose slightly to $394,300.

New home construction is typically more expensive than existing homes of similar size, condition, and amenities, but homebuyers are flocking to new homes because the costs and benefits between existing homes and new homes has narrowed. According to NewHomeSource.com, new home buyers get numerous benefits, including: 

• The ability to choose the finishes, fixtures and decor
• A “honeymoon” period when everything in the house is brand new
• Builder-supplied warranties for finishes, systems and structure
• Energy-efficient heating, ventilation, cooling and appliances that will save you money
• The latest in architecture, design, floorplans, construction techniques, and in-home automation.

In the overheated market of the past few years, shopping for a home has become wearisome to homebuyers, including some buyers’ remorse caused by unexpected issues with the home, too much maintenance and upkeep, and too many compromises simply to get into a home.

Ask your Berkshire Hathaway HomeServices network professional to show you new homes in your area. Don’t visit builders or model homes without your agent, so they can negotiate for you.

An arm’s length transaction in real estate takes place between an unrelated seller and buyer who each act willingly, independently, and in their own best interests. The property is most likely to be sold at market value, which means that it’s been exposed on the open market for a reasonable length of time to get the highest and best offer, and is sold by the owner with no special financing, sales concessions, or undue pressure. 

A non-arm’s length transaction is between a seller and buyer who have a personal connection such as family or friends, and who may not be acting in their own best interest. They may agree on a price that doesn’t reflect the true market value of the property, such as your parents selling their home to you for significantly less than market value because they want to help you more than they want a higher price for the home.

For this reason, it’s important to inform your lender and appraiser that you are buying the home in a non-arm’s length transaction. According to UpCounsel.com, FHA-guaranteed loans can be obtained for a 3.5% down payment in an arm’s length transaction, but the same loan in a non-arm’s length transaction requires 15% down, with a few exceptions. There are also potential tax consequences for real estate that transfers at less than market value.

To avoid potential problems and costs, purchase the property at true market value with the help of your Berkshire Hathaway HomeServices network professional.

In the new year, homebuyers and sellers are still facing the same challenges as they did in 2023—high interest rates, sky-high home prices, and an inadequate supply of homes. As affordability issues slow housing sales volume, low supplies are keeping home prices high.

Bankrate.com experts say that mortgage interest rates reached 8.01% in October, the highest level since 2000, but since then rates have come down. There’s no likelihood of a housing market turndown as long as lending standards remain strict, and there aren’t enough homes to meet demand. Goldman Sachs Research expects 30-year-mortgage rates to open 2024 at 7.6% and to end the year at 7.1%. Home prices will appreciate 2% in 2023, 1.9% in 2024, and 2.8% in 2025. If mortgage interest rates continue to ease, it’s likely that demand for homes will reignite, despite higher purchase prices.

The Federal Reserve’s aggressive handling of inflation by raising overnight borrowing rates to banks has had a positive effect, and further rate hikes appear unlikely as the numbers get closer to the Fed’s target of 2% inflation.

Meanwhile, help is out there for those being squeezed out of the market. FHA-guaranteed loans require as little as 3.5% down. Numerous state and local governments have increased programs for first-time and lower-income homebuyers. Many lenders offer grants, down payment assistance programs, and mortgages with no closing costs. The National Association of REALTORS® offers the Housing Opportunity Program, with resources for homebuyers.

For further advice, ask your Berkshire Hathaway HomeServices network professional.

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