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The current housing market is a concern for many individuals and families due to increasing prices, limited inventory and rising interest rates. Whether you are looking to buy your first home (or a new home), are exploring new construction options, or even considering purchasing an investment property it can be tough to navigate.

In the most recent episode of Your Money. Your Mission., we welcome Loren Fellows, Vice President of Mortgage Production at Johnson Financial Group, who shared valuable insights into these pressing housing market questions based on her over two decades of expertise. Let’s dive into Loren's advice and discuss the key takeaways.

1. First-Time Homebuyers: Preparation and Patience are Key

Loren reassures first-time homebuyers who expressed concerns about the current market's competitiveness. She emphasizes the importance of preparation and patience. Here are some key points for aspiring first-time homeowners:

  • Work with a Realtor: Collaborating with a buyer's agent who understands the market can be invaluable. They can assist in negotiations and help you navigate the complexities of buying a home.
  • Financial Pre-Planning: Loren advises speaking with a lender before starting your home search. This step helps you determine your budget, gauge affordability, and understand your financial guardrails.
  • Pre-Approval Matters: While there are various pre-qualification letters available online, Loren highlights the significance of obtaining a fully underwritten pre-approval letter from a reputable local lender. This approach makes your offer more competitive and provides you with confidence during negotiations.
  • Be Patient: Given the tight inventory and competitive nature of the market, it may take several offers before securing your home. Remaining patient throughout the process is essential. You’re in it for the long game.

2. Consider Building a New Home

If existing homes don't meet your criteria, building a new home can be a viable alternative. Loren explains that this strategy is gaining popularity due to limited inventory. Here's how you can approach building a new home:

  • Get Pre-Approved for a Construction Loan: Similar to the pre-approval process for a traditional mortgage, consult with a lender to determine your budget for a construction loan.
  • Select a Lot: Work with your realtor to find an appropriate lot in your desired location.
  • Construction Loan Process: Construction loans have nuances, so consult with your lender to understand the requirements and responsibilities involved.
  • Parade of Homes: Take advantage of local Parade of Homes events to explore different builders and home styles in your area.

Loren emphasizes that building a new home can be a smart option, especially when market inventory is low. It allows you to tailor your home to your needs and preferences.

3. Investing in Rental Properties: Can Still be a Wise Financial Move

Loren acknowledges the potential benefits of investing in rental properties, a strategy her parents successfully implemented. Here's what you need to know about investing in rental properties:

  • Higher Down Payment: Investment properties typically require a 15% to 20% down payment, and the source of this down payment must be your own savings, not a gift.
  • Higher Interest Rates: Interest rates for investment properties can be slightly higher than those for primary residences.
  • Cash Reserves: Ensure you have adequate cash reserves to cover expenses such as maintenance and unforeseen repairs.
  • Market Rents: Research market rents in your desired location to set appropriate rental rates for your property.

Investing in rental properties can be a valuable addition to your financial portfolio. It provides a source of income and the potential for long-term financial growth.

In conclusion, navigating today's housing market requires a combination of preparation, patience, and thoughtful decision-making. Whether you're a first-time homebuyer, considering building a new home, or exploring investment properties, following these insights, you can better position yourself to achieve your homeownership and investment goals in today's dynamic housing market.

Products and services offered by Johnson Bank, Member FDIC, a Johnson Financial Group company. Equal Housing Lender. Loans are subject to credit and property approval, bank underwriting guidelines, and may not be available in all states. Other loan programs and pricing may be available. Certain conditions, terms, and restrictions may apply based on the loan program selected. The term of the loan may vary based upon program chosen. Property insurance is required; if the collateral is determined to be in an area having special flood hazards, flood insurance will be required.

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Becky McClelland
Becky McClelland, AVP Private Banking, Kenosha, WI

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