Buying A Home In Winter

The spring and summer months may seem like the ideal time to buy a home: people normally take vacations that allow time to move, home sales are competitive, and the weather is typically more pleasant for moving your household than during the colder months. While some of this is certainly true, many potential homebuyers don't know that they may actually get a better deal on a home if they buy during the winter months.

Real estate’s slowest months are during the winter season, but this can work to your advantage. Because home sales are down, sellers are more determined and motivated to sell. There will also be less competition from other prospective buyers. In most areas of the U.S., the weather is less favorable for house shopping than during the spring or summer. Because of this, homes that are listed for sale during this time normally sit on the market longer. If you find a house you like, buying it during this slower season can mean less competition from other buyers, more motivated sellers who don’t want the house sitting on the market too long, lower purchase prices, and even quicker mortgage approval.

Since real estate is slower during the winter, so is the mortgage industry. The mortgage industry is reliant on home sales. Mortgage professionals are able to process your home loan faster when they have fewer loans to review. If you find a home with a motivated seller and come to your lender prepared, you can potentially close quicker than would be possible in the busier spring and summer months. This quicker turnaround may also give you an advantage in negotiating a lower purchase price. Sellers want to get their house off the market quickly.

Buying a home during any time of the year is a great decision, but there are some surprising factors that can make winter home buying more appealing.

Motivated Sellers and Quicker Mortgage Approval

As mentioned, sellers don't want their homes sitting on the market too long. It can not only be financially detrimental, but buyers who see that a home has been on the market for a long time may overlook it, thinking there must be problems preventing the home from selling. Sellers take a risk by listing their homes during the colder holiday months because the real estate market is always slower. People have familial and holiday obligations, kids are on vacation from school, and the weather isn’t as pleasant for house shopping as during the warmer months. But this can be beneficial to you as a buyer. Since sellers are more motivated to sell during these slower months, you may be able to negotiate a lower purchase price for the seller to get the house off the market.

A seller may be more likely to give you a discount on their asking price during winter because your mortgage lender will likely be able to process and close your loan quickly. During the busier real estate season, mortgage lenders often get backed up with loans that sometimes cause delays in processing. This is especially true with loans that are insured by the USDA, FHA, and VA, because these loans have to be evaluated by a government underwriter in addition to the lenders’ processing staff and loan review can be delayed up to several days.

Being prepared with everything your lender requests is the most important factor in closing your loan quickly, regardless of time of year. Buying a house is a lengthy, sometimes strenuous process, and you will be expected to provide a number of important documents that your lender will use to determine your eligibility and the amount you’re able to borrow.

Commonly requested documents include tax returns, income verification including W2s or 1099s and paychecks, banking records for all accounts, and valid forms of identification. You will also have to shop for a homeowners insurance provider. Lenders may require additional documents based on the loan program you choose.

A part of the mortgage loan process relies on your ability to complete the signing of particular documents in a timely manner. These may include employment verification, loan estimates, letters of explanation, and disclosures. Each lender operates a little differently, so the necessary documents may vary from bank to bank. If you fail to sign or complete a document on time, your loan may be put on hold.

A mortgage loan officer’s priority is to get your loan closed, however, so they will assist you with everything throughout the funding process.

Home Affordability

Sellers are very motivated during the winter months. In fact, home prices are at their yearly all-time lows during December. With low home prices and the possibility of negotiating an even lower price, you may get the best deal on a house during the slow real estate season.

Most people are very busy during the holiday months with family get-togethers, vacations, or maybe they’re just avoiding inclement weather. So, instead of waiting for someone to buy their house, sellers would rather be enjoying time off with family or traveling.

You may find yourself in an advantageous position if you’re thinking about buying a house during the holiday or winter season. Since homes are already listed at yearly lows, you know the listing price is already less than what you’d find during the spring or summer. But, because sellers don't want their houses sitting on the market for a substantial amount of time, they are more likely to accept an even lower price than the listing. This could mean thousands of dollars in overall savings and hundreds off your monthly mortgage payment.

For example, if a home is listed for $250,000 but the sellers accept your offer of $200,000, that’s a difference of $140 in monthly payments for a 30 year mortgage loan, excluding taxes, interest, and insurance. The savings really add up over time.

Loan Types and Standard Procedures

As previously mentioned, your home loan may be able to close more quickly during the slower real estate season because lenders and banks aren’t as backed up with other mortgage applications. Although the process can be faster, there is still a number of things that must take place for your loan to close that are out of your and your lender’s control.

When you first apply for a mortgage, your lender will obtain basic information from you such as your credit report, employment history, living history, and financial obligations. Many buyers are surprised by the amount of documentation and personal information requested by their lender. This practice is necessary in order to guarantee that bad loans aren’t being sold. The health of our economy is dependent upon the mortgage industry and bad loans can be economically devastating, as was witnessed in the financial crisis a decade ago. Lenders must establish the loan worthiness of each mortgage applicant, and these documents are required to do so.

There are numerous mortgage loans on the market and they all have different specific approval requirements. Some will accept lower credit scores and lower debt-to-income ratios, whereas others are more strict on their approval standards. A few of the more common loan types offered are FHA, USDA, and Conventional.

The FHA loan is very common. In fact, 1 in 4 new home loans are through FHA. This loan gained its popularity by being a low-cost alternative to high-rate, low-term mortgages in the 1930s. Even today many buyers prefer the FHA loan to other options because of its affordability and lenient approval standards.

FHA requires just 3.5% down. In comparison to the unaffordable 20-50% required of home buyers in the past, this is very cheap and much more reasonable. Buyers don’t have to save for years to be able to afford a home of their own. Actually, FHA will accept gift funds as the required down payment, as long as the funds come from approved family members or organizations. Not only is FHA’s down payment low, they also accept credit scores as low as 640. Additionally, negative credit events like foreclosures and bankruptcies aren’t immediately disqualifying and the wait time for approval after discharge is much less than conventional loans.

If you’re able to negotiate a lower purchase price on a home, your FHA down payment and monthly mortgage amount will be considerably lower.

Also gaining popularity in the low-cost mortgage loan sector is the USDA loan. Unlike FHA loans, though, this loan requires zero money down, regardless of the purchase price. The only small catches to the USDA loan are the income and geographical restrictions.

The USDA loan was developed as a means to providing lower income, rural Americans access to affordable housing. USDA enforces income restrictions that will disqualify anyone who earns an income greater than the designated maximum amount in their region. The income restrictions are based on per capita income in an area and vary based on the number of people in a household. Because the USDA focuses on improving life in rural areas of the country, the home loan is restricted to those rural areas designated by the USDA. These areas include many regions of the U.S. including small towns and suburbs.

Aside from the few restrictions, USDA is very lenient in regards to mortgage approval. They accept credit scores as low as 620 and offer mortgage rates that are often below-market average. This loan is also virtually cost-free. There is no required down payment, and all other fees like closing costs and mortgage insurance premiums are bundled into the total loan amount. Many buyers choose this loan if they want to reserve their cash for other expenses or home renovations once they move in to their new house.

Traditionally, Conventional loans have required down payments in excess of 5-20%. But just recently another conventional loan was released on the market that requires just 3% down. This loan requires much of the same as typical conventional loans for mortgage approval, but without the burden of large up-front costs. Conventional 97 buyers still get the benefits of a conventional loan, including the option to drop mortgage insurance after 20% equity is reached.

There are benefits to making larger down payments, which is why buyers often choose conventional loans. Not only do they have the option to eventually drop mortgage insurance, but buyers who make larger down payments will have lower monthly mortgage payments. A down payment over 20% will eliminate the need for mortgage insurance at all.

The decision to buy a home is one of the most important you will ever make, but it doesn’t have to be stressful. A great way to avoid the hassle of outbidding other potential buyers is by searching for a new home during real estate’s slower season. You may be able to negotiate a lower purchase price and close more quickly on your house.

The numerous loan programs on the market ensure that there is a loan for every buyer’s scenario. Speak with a mortgage lender to learn about your options and bring in the new year with a new home.