How a Mortgage Nerd Bought a House in a Seller’s Market

I closed on my house about eight months ago, but it feels like it was in another lifetime. Yes, the COVID-19 pandemic makes time feel bizarrely elastic, but also, the housing market has undergone dramatic changes during that time period. As a writer focused on mortgages and homeownership, it’s my job to watch this stuff, and what I've seen in 2021 has been legit bananas.

If you're struggling to find a home you can afford or trying (and failing) to get an offer accepted, I just want to say — take it easy on yourself. It's not you. This is really hard.

For those of us who aren't already rolling in dough, it may take big sacrifices to afford a home: sacrifices like taking on an extra job while living on a spartan budget, breaking a financial "rule" like borrowing from retirement funds, pooling resources to create a multifamily or multigenerational household, moving from a high-cost part of the country to a low-cost one, or any combination of the above — plus all the things I did.

Here's how I bought a house. It wasn't glamorous, and most of it wasn't fun, but these are the kinds of moves people determined to become homeowners are making in this market. And if you’re not in a position to follow suit (or just don’t want to) don’t sweat it: There’s no shame in continuing to rent and bolster your financial health in the meantime.

I moved in with my mom

Is moving in with a parent when you've been living independently for years the coolest move? No. Was it a smart one for me? Yes, and I am beyond grateful to have had that support; I realize not everyone does. Working remotely from my childhood bedroom let me sock away the money I'd been spending on rent. And, hey, because I moved in summer 2019, when COVID hit, I was way ahead of the moving-back-home curve.

The National Association of Realtors found that from July 2019 to June 2020, roughly 4% of all home buyers said they'd moved in with family or friends to save money for a home purchase. That number's around 7% for first-time home buyers.

Kristen and Robert Toth Jr. weren't first-timers, but they opted to move in with Robert's mother not long after listing their Allentown, Pennsylvania, starter home in October 2019. That way, they’d have some breathing room before buying again and would be able to bulk up their down payment. They ended up staying for 10 months, anxiously watching as properties were snapped up sight-unseen for tens of thousands of dollars over the asking price during Pennsylvania's shutdown last spring.

"There was zero way we could have moved out of our old house and moved into an apartment, paid rent, and been able to afford this house," Kristen says of their three-bedroom, 1950s ranch home in the suburbs of Lehigh Valley. "If we weren't living with a relative, we don't know what we would have gotten."

I made a 20% down payment

Same, Kristen, same — there was no way I could have swung my 20% down payment without cutting an expense as big as rent. Even though I'd managed to pay off my car and student loans, without drastically reducing my monthly spending it would have taken me years to save up for a down payment.

In the first quarter of 2021, the median sale price of an existing home was $319,200, according to the NAR. You'd need to skip nearly six years' worth of lattes to make a 3% down payment (the minimum down payment for a conventional loan) on a house at that price. Assuming a $4.50 cup of java, that's like 2,128 lattes — and that doesn't even include the other upfront expenses involved in a home purchase, like paying closing costs or hiring movers.

Another issue? While making the minimum down payment is easier on your bank account and, with mortgage interest rates at historic lows, lets you borrow more money cheaply, it can be a liability in a hot market. That's especially true now, with home prices at times outstripping appraisals and sellers concerned with a mortgaged buyer's ability to cover an appraisal gap.

"When you're evaluating offers as a seller, and you've got a 3.5% [Federal Housing Administration loan] and a 20% conventional, if they're both equal and both are trying to hit a $350,000 appraisal, naturally you'll choose the one with the higher down payment, since you know they'll be able to hit that gap," explains Mike Ferrante, a real estate agent with Century 21 Homestar in Cleveland.

In other words, since the 20% buyer has more cash on hand, a seller may assume they could use some of those funds to cover an appraisal gap and simply make a lower down payment. An appraisal gap occurs when the appraised value of a home is less than what you offered.

Lenders won't allow you to borrow more than a house is worth. So if you want to keep going despite a low appraisal, you have to be able to make up the difference in cash. (Or the seller has to reduce the price, something unlikely to happen in a super-hot market.) Buyers who plan to put down 20% are better positioned to shift some of that cash to cover an appraisal gap, while still meeting minimum down payment requirements. That may be one reason why in March 2021, 29% of first-time home buyers put down 20% or more, according to NAR data.

I got a mortgage preapproval

When I was ready to stop just scrolling through real estate listings and actually see properties, I researched lenders and ended up applying for mortgage preapproval with about half a dozen. Full disclosure: I don't know that I would have thought to do this, or even compare lenders at all, if I didn't write about mortgages for a living.

By the time I was looking at homes in spring 2020, my local real estate market was hot, but sellers were also wary of too many strangers trooping through their homes. Many sellers asked buyers to show proof of financing before allowing them to view homes in person.

A year later, it's less about coronavirus concerns and more about sellers anticipating multiple offers over the listing price. "We won't even take people out if they don't have prequalification or preapproval; you're not going to get accepted if you don't have an offer in hand," says Re/Max Key Properties agent Brent Landels, who's based in central Oregon. Landels advises looking at homes that are listed below your preapproval amount because it gives you room to bid higher.

I bought a fixer-upper

I walked through more than 20 homes in person and scrolled through who knows how many more online. Finally, in September 2020 I closed on a 1740s Cape Cod-style home in eastern Connecticut that needed a lot of love (you read that right, it's almost 300 years old). It had loads of period charm, a large lot with plenty of mature trees, but had it been move-in-ready, I doubt I would have been able to afford it.

That low upfront sticker price can come with a cost, something Monica Lee and her partner, Dan Hart, have also found to be true of the fixer-upper they bought just outside Washington, D.C. "We found a house in Takoma Park that was ridiculously inexpensive, but it was unlivable," Lee explains. In August 2020, the couple purchased the home, which Lee says had been unoccupied for roughly 10 years, with an FHA 203(k) loan covering the cost of the home loan as well as their planned renovation.

The logistics of their loan proved more difficult than anticipated. "I've worked in government, I get permitting, I thought I was going into it with eyes wide open and I could keep things moving," Lee says. Red tape and trouble securing contractors pushed back the couple's timeline again and again, but Lee says, "You do learn a lot. You feel like you accomplished something. I will feel like we love the house."

Be patient with yourself and the market

Buying a house in a seller's market has definitely meant even more work (and money) than I anticipated. I ended up staying at my mother's for months after closing while I got the house into livable condition. But I'm coming to love my house, too.

If you can hang in there, make the sacrifices this market demands, and end up with a place to call your own, congrats. And if you choose to bail on your home search for now, I can't say I blame you.

Yeah, you'll have to keep renting longer, but you'll also have more time to save for a down payment and maybe tune up your credit score, which can help you get a better interest rate. The market could even become a bit friendlier to buyers. There's still plenty of time for you to become a homeowner — and if this isn't the right time for you, that's totally OK.

Top photo: The author's circa 1747 Cape Cod-style home. (Photo courtesy of Kate Wood)