4 Powerful Tips for Timing Your Home Search
The #1 question I get asked about the home buying process is “When should I start my search?” This is a great question, and very important for everyone to ask, because there is no one-size-fits-all answer. When to start your search depends on your particular circumstance…
…And that’s probably the least helpful sentence in this whole post! “I know my circumstances, but I still don’t know how to time my search!” you’re probably saying to yourself. In order to get the right search timeline, collaborating with your partners in your home search, i.e. a good buyers agent and a local lender, is essential. They are the ones who will guide you on those “unknown unknowns” that can make all the difference in the world. For example, did you know it is possible to go 60 days between closing and your first mortgage payment? It is… but only in the right circumstances. It is just a matter of knowing how to navigate these circumstances. In this post, we will go through many of the common considerations and questions that my clients have, and that I weigh while helping them determine their search timeline. It is still highly advisable to speak with your buyer’s agent (or shoot me a message - always happy to help!) on the particulars of your situation; however, our goal today is to give you a birds eye view of timing considerations, and demystify the reasoning behind various timing tactics.
The Short Answer:If you read nothing else here, read this: budget two months at the absolute minimum for your search. There is much more to timing a home search than that simple edict, and it is ideal to have double that amount of time, however two months is the minimum. Why? Once you have a contract it will typically take a month to close, the other month should be dedicated to searching. Particularly in a low inventory market, you want to allow at least 1 month to search in case the right option is not currently on the market. Ideally, you should budget four months, so that you can alot 3 months to searching and 1 month to closing. If you’re on a lease and ask “Won’t that mean I’m paying my mortgage and rent at the same time?”, don’t worry! That can be avoided, just keep reading. The real upshot to a 4 month search window however is that you have the luxury of waiting for new options to hit the market, if the right one is not there initially. Now that we have our “rule of thumb” timing out of the way, let’s dig in on the specifics of timing starting from that first dollar in your savings account.
Timing Tip #1 — Start Saving
The first timing consideration is saving enough money to be able to close successfully. Most people know you will need a down payment - and many qualify for as low as 3% of purchase price (e.g. a $400,000 home at 3% down would require $12,000 down), however often buyers forget to budget for closing costs. In a competitive market, having the sellers fully cover closing costs is rare, so it is advisable to budget for 3-4% of purchase price in closing costs as well. For that hypothetical $400,000 house, total “cash to close” (closing costs + down payment) will likely be 6-8% or $24,000 - $32,000. Saving this much or more is the first timing consideration. Determine how much you can save per month + your existing savings, and that is the number of months you need to budget before starting your search.Other considerations: in ideal circumstances, sometimes closing costs can be financed by adding them on to the purchase price, and then paid by the seller. There are also down payment assistance payment programs available for many buyers. However, these options will not fit in all scenarios, particularly highly competitive situations with multiple offers.
Timing Tip #2 — Determine Deadlines
Once you have a nest egg saved, the next consideration is any hard deadlines you might have. Examples of a hard deadline are a lease ending, or a relocation date for a new job. Generally we will refer to our rules of thumb above. Two months minimum and four months ideally, in order to allow one month to close, and one-to-three months to search.
Renters, I hear you, “If I start 4 months before my lease ends and we find the right option quickly, won’t I be paying my lease and my mortgage at the same time?” Good news, you can close well before your lease ends, and still not double up on payments! How is this possible? Well, typical mortgage products will have a payment commencement date on the 1st day of the month, after the first full month after closing. For example if you close May 1st, your first mortgage payment won’t be until July 1st. Similarly, if you close May 30th, your first payment will also be July 1st.I am sure you see where I am going with this now. If your lease is up on June 25th, that means you can close almost 2 months before your lease ends, and still never double up on payments, because your first mortgage payment won’t be due until July 1st! This also means you can safely start your search in early april, or roughly 3 months before your lease termination.
However, with other deadlines, it is still best to keep in mind the two month minimum rule, and four month ideal rule.
Timing Tip #3 — Consider Contract-to-Closing
As mentioned above, it is always best to budget one month from the time you go under contract until closing because that is the time that the mortgage lender will use to underwrite you for your loan and the attorney will perform the title search. These are vital functions that cannot be shortcut. Some lenders can close faster, sometimes in as little as 10-21 days, however this cannot be done in every case, and is not desirable for many sellers, who also have timing considerations.
Timing Tip #4 — Study Seasonality
The housing market is highly seasonal, and certain times of year will result in advantages and disadvantages. Typically summer is high season for the real estate market because many families move around school schedules. The winder holidays, by contrast are low season.
During the summer many more homes will be available, but competition will be higher, as well. A summer search is great for anyone who wants the maximum number of options, and is not afraid of competitive, multi-offer situations. Conversely, winter months will usually see a decrease in inventory, and buyers as well. A winter search is great for buyers who have more flexible criteria for their ideal home, or buyers who do not want to deal with as much competition.
However, seasonality should only be considered for those with high flexibility, like those who already own a home, or are on a month-to-month lease. For those with hard deadlines, rest assured that good results can be achieved in any season.
Timing Tip #5 — Orchestrate Occupancy
Our final tactic is only an option if you have allotted yourself enough time, and that is temporary occupancy. It is increasingly common for sellers to request that they remain in their homes after closing in order to make their timelines work. If you are selling and buying, you can also use temporary occupancy to your advantage.This is a simple contractual arrangement that can help win offers against competition with less timing flexibility. By telling a seller “we can pay a competitive price, but also allow you to stay in the home for two weeks after closing to help you move into your next place”, you can offer peace of mind, and possibly win an offer that you would not have otherwise won. Of course, this tactic is only available if you have allotted enough time up front. For current homeowners this is easy, but for renters close to their lease end, it will not be an option. All the more reason to start early.
Note: In GA, standard forms only allot for up to 60 days temporary occupancy, and many mortgage companies will have limits on temporary occupancy periods as well. Phew! That is a lot to consider! Let’s recap. First, start looking at your savings and budget time to save up, if necessary. Second, give yourself at least 2 months before any hard moving deadlines you have, and ideally four months. Time is a luxury, and the more you have the more options you will have in your search, and the more competitive you will be as a buyer. Having said all that, I want to reiterate, your situation is unique! The best way to find out your timeline is to speak with a real estate professional and a lender.
Phew! That is a lot to consider! Let’s recap. First, start looking at your savings and budget time to save up, if necessary. Second, give yourself at least 2 months before any hard moving deadlines you have, and ideally four months. Time is a luxury, and the more you have the more options you will have in your search, and the more competitive you will be as a buyer.
Having said all that, I want to reiterate that your situation is unique! The best way to find out your timeline is to speak with a real estate professional and a lender. No matter your situation, always feel free to REACH OUT and I am happy to help you out with your timing considerations.