20 Things to Know When Buying a Home in 2022

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  Written by Kristen Herhold

Buying a home in 2022 can be chaotic. Interest rates have shot up (and could be headed higher), prices have momentarily stopped their steep climb, and inventory is slowly increasing. On the other hand, buyers are still desperate to get into a home, and sellers don’t want to miss out on what could be the tail end of the seller’s market.

Still, many sellers are reassessing whether they even want to list their homes right now. They’re assessing whether the uncertainty of a sale is worth the amount of real estate commission they’d pay and even whether they want to work with a conventional real estate agent or try to save money by going with a flat fee real estate broker. This has led to fluctuations in housing inventory — while inventory was sharply increasing earlier in 2022, those increases have since slowed, and fewer homes are coming onto the market now than earlier in the year.

So how does a buyer navigate a market like this? These are uncertain times, and there’s no rule book for this kind of market. But if you keep a few basic rules and principles in mind, you could still get your dream home at a great price, and with minimum fuss. Let’s get into the 20 things every home buyer has to know in 2022!

1. Buyers Outnumber Homes Right Now, by Quite a Bit

As of summer 2022, there’s been a lot of talk about a housing market slowdown. And the market has slowed down, a bit. But the market of the past few years was so hot that even after a moderate slowdown, the market still remains extremely strong historically.

Many experts believe the root of today’s hot market is that construction never really recovered after the 2008 financial crash, leading to extremely low housing inventory today. A healthy amount of inventory is about six months’ worth. Right now, many hot markets have less than one month’s worth of inventory.

The upshot? There are more buyers than houses, which naturally leads to a lot of competition over those properties. And while competition should ease in the near future, it’s going to remain a seller’s market for the foreseeable future.

2. But Inventory Is Projected to Increase

That said, there’s a lot of housing inventory in the pipeline that’s expected to trickle onto the market in 2022 and 2023. Some of this is due to sellers who want to take advantage of high prices before they plateau or decline as well as new construction that’s being completed.

One example of this is Austin, Texas, which has been one of the nation’s hottest real estate markets. In June 2022, inventory in Austin was a whopping 145% higher compared to a year before, and up 113%, year-over-year, in the red-hot Phoenix market.

3. Even with Increased Inventory, Competition Will Likely Remain Very High

Unfortunately, overall housing inventory is still only at about half of pre-COVID levels. So even as climbing mortgage rates thin the ranks of prospective buyers, competition for these homes will remain pretty high. 

Furthermore, the rate at which inventory has been rising has slowed significantly, so new inventory is no longer flooding the market — at this point, it’s more of a trickle. That will serve to keep prices and demand pretty high. That’s good news for sellers, who could be heading into a stressful and even expensive home sale.

4. Home Prices Will Still Rise—But Will Rise at a Slower Pace

At this point, most experts are projecting a soft landing for the housing market. Prices will stop rising quite as steeply as they have been. In fact, the home price growth rate had already begun to decelerate in July. But they likely won’t decline — and if they do decline in some markets, it’ll be a very slight decline.

Overall, home prices are likely to continue rising, but in more of a plateau than a steep spike. That means that if you’re waiting for a big price drop to buy your dream home, you may not get it, and you might be better served just buying now.

5. Before You Start Your Home Search, Understand Your Wants and Needs

Buying a home is a great investment — but it’s also a huge, life-changing decision. 

Before you start looking at places, think very specifically about what you want in a house: where you want to live, what kind of amenities you want access to, how much room you need, etc. This will make your home search go a lot faster, and save you and your agent a lot of time.

Think about big picture questions, too. Are you ready to settle down and put down roots? Is your job secure? If you lost your job, would you be able to keep up with your mortgage payments? Are you ready to take on the responsibilities of being a full-fledged homeowner? Buying a house isn’t a decision you make rashly!

6. Does the Neighborhood Fit Your Needs?

Your neighbors — and your neighborhood — will have a lot to do with how you feel about your new home. Make sure a prospective neighborhood is a cultural fit. If you’re a family, you’ll likely want to live around other families who have kids close to the ages of your own kids. On the other hand, if you’re older, and you put a premium on peace and quiet, a bustling family neighborhood might not be what you’re looking for.

You’ll also want to look into things like commute times to your job, green space, traffic, and school quality — anything that will impact your everyday quality of life.

7. How Much of Down Payment Can You Handle—and How Much Will You Need?

The larger your down payment, the lower your monthly mortgage payments.

That being said, not all mortgages require you to put down the traditional 20%. Government-backed mortgages like the FHA (Federal Housing Administration) loan require a down payment of 3.5%, and other loans, like the VA (Veterans Administration) loan, require zero down payment.

However, if you opt for a low down payment mortgage, you’ll have to pay private mortgage insurance (PMI) until you accrue 20% equity. This charge is added to your monthly mortgage payment. 

8. Closing Costs Are Substantial

For buyers, closing costs will come to 2-5% of the sale price. So if you buy a $350,000 home, you can expect to pay $7,000 to $21,000 in closing costs. That’s a lot of money, especially if you’ve already scraped together all your funds for your down payment.

If you need to, many lenders will let you roll your closing costs into your loan — just keep in mind that if you go that route, you’ll end up paying interest on them.

When you apply for your mortgage, you’ll receive a closing costs estimate from your lender. Your closing disclosure, towards the end of the sale process, will also lay out your closing costs. 

9. You Should Clean Up Your Credit Score

Your credit score is a big factor that lenders look at when they consider your mortgage application. The better your credit score, the better your interest rate and loan terms will be. That means it’s well worth your time to clean up your credit score before you apply for a mortgage, as even a small improvement in your mortgage rate can translate to thousands of dollars in savings over time.

You can check your credit score by requesting a free credit report from one of the major credit reporting agencies. Study your credit report for any errors, and if you find any, contact the agencies and request to have them removed. If you have outstanding small debts, paying them off could be a quick way to improve your credit score. And paying off debts, in general, is a good idea when you’re gearing up for a home purchase.

10. Don’t Forget Your Debt-to-Income Ratio

Lenders will also take a close look at your debt-to-income ratio (DTI) when deciding whether to offer you a mortgage and for how much.

Basically, DTI is an expression of how much of your income goes toward paying down debts. The more debt payments you have to make, the less cash you can contribute towards a mortgage payment. To figure out your DTI, simply divide your total monthly debt obligations by your total gross monthly income.

Lenders like to see a DTI in the neighborhood of 50% or less, though some loans may have a stricter DTI requirement, and now that interest rates have climbed, and lending standards have tightened, many lenders are asking for a DTI below 28%.

11. Mortgage Rates Are High—Which Has Reduced Buying Power

Mortgage rates are hovering around 5%, which is more than double their recent lows. That’s made prospective buyers’ projected mortgage payments shoot up by as much as 50%, which has significantly reduced how much house they can afford. In a nutshell, that’s what’s driving the recent market deceleration, though the effects of higher rates haven’t yet brought the market to a full halt.

If you recently calculated how much house you could afford, you should crunch the numbers again. With the latest mortgage rates, you may not be able to buy as much house as you think.

12. Get a Mortgage Pre-Approval

A mortgage pre-approval lets sellers know you’re serious about buying and that you’re financially qualified. A pre-approval letter will get your offer taken more seriously than buyers without pre-approvals.

Getting a mortgage pre-approval from a lender requires them to look into your finances and determine how much of a loan you could theoretically qualify for. While it’s not a guarantee of anything, it does give you (and the seller) an official estimate of what you can afford, and sellers know that buyers with pre-approvals will likely have a very good chance of getting approved for financing — a much better chance than someone without a pre-approval letter.

13. Comparison Shop for the Best Rates

Don’t just apply for a mortgage with one lender! Meet with at least three lenders, or make an appointment with a mortgage broker, to make sure you end up with the best rate possible. You’d be surprised how much rates and terms can vary between different lenders.

Studies have shown that the more rate quotes a borrower gets, the more they end up saving on their mortgage!

14. Partner with a Great Agent

Your real estate agent is an incredibly valuable resource during your home search and purchase. They can help find properties that fit your needs and negotiate down the price of the home you want, saving you thousands of dollars.

They can also help you with big picture questions. For example, the neighborhoods you’re targeting may not be realistic with your budget, and a good agent will be able to steer you to areas that are more realistic for your price range. They can also recommend areas for things like low crime, good schools, or public transportation accessibility. These are all issues you could research or learn about yourself, given enough time, but an agent can help you move things along at a much more efficient pace!

15. Be Realistic

This can mean a lot of things; if it’s mid-August when you start your home search, don’t expect to make it into your new home before the school year starts. If your budget is lower than the average home value in your area, don’t expect to get a luxury five-bedroom home with a pool and three-car garage. If inventory is thin and buyers are everywhere, don’t expect to have your first offer accepted.

Like many things in life, how satisfied you are with your home buying experience depends on the expectations you have going in. Keep them realistic, and you have a good chance at a smooth ride!

16. Set a Budget—and Stick to It

Figure out how much house you can afford, and don’t give into the temptation to exceed your upper limit. This can be especially tempting in hot markets, where bidding wars are common. When you find your dream home, it can be tempting to up your offer however much it takes, especially if you’ve been on the losing end of a few bidding wars already.

Don’t do it! The financial stress you’ll experience from shelling out a monthly payment you can barely afford will far outweigh the satisfaction you get from winning a bidding war. 

When you calculate how much house you can afford, don’t just look at your mortgage payment. Include costs like HOA fees, annual maintenance, utilities, and insurance.

17. Patience and Flexibility Are Key

In hot markets, bidding wars are very common. Even though the market has slowed down a little, you should still expect to lose out on a few bidding wars before you snag a home. Don’t get discouraged when this happens; just keep looking, and keep making offers. You’ll get a home eventually.

Flexibility can also be an important quality here. If you keep losing out on a certain type of home, maybe it’s worth expanding your horizons and looking at different types of properties. 

18. You May Be Asked to Waive a Home Inspection

Another characteristic of a hot market is that sellers have a lot of leverage, and may ask for a lot of concessions.

Seller demands can include a lot more than just a higher price. Some sellers will ask you to waive all contingencies, which are clauses in the purchase agreement that protect the buyer. A common contingency to get waived is the home inspection. A seller may ask you to skip the home inspection, and by removing that contingency, you’ll still have to go through with the sale even if serious problems are found with the house.

This might not be a big deal if the home is new or in great condition — or if you really, really want it. Some buyers get around this by taking a knowledgeable friend to the open house, to give the house a visual once-over. But waiving your home inspection is a big risk, as many serious problems aren’t obvious, and skipping an inspection could mean big trouble down the line.

19. You Can Negotiate for Repairs or Credits

If your home inspection does find serious problems with the house, that doesn’t necessarily mean the deal is off!

You can ask the seller to perform repairs before the deal is closed or, if they’re unwilling or it will take too long, you can negotiate repair credits to lower the sale price in the projected amount of the repairs. This is where a good agent is very useful since they’ll have experience with this type of negotiation.

20. Closing Can Take a While— and May Lead to Delays

Closing is essentially the home stretch of your home purchase. But it also involves a lot of different people with a lot of different jobs — the two real estate agents, title companies, real estate attorneys, escrow agents, and potentially many others. It also requires a ton of legal and financial paperwork that, if not properly prepared, signed, and delivered to the required parties, can hold up the sale. The bottom line: don’t be surprised if your closing drags out longer than you expected, but be patient and remain positive.