While there are several indications that the housing market is cooling, buyers and investors should not be deceived: It’s still a very hot real estate market.
In June 2022, the median house price reached an all-time high. Competition remains intense, thanks to a lack of housing supply and continuing demand. In addition, rising mortgage rates add to the intrigue.
If you’re ready to purchase, here are three things you should do right away.
1. Get your finances in order
Mortgage rates are on the rise, and lending criteria are tightening. In June 2022, Fannie Mae and Freddie Mac, two of the largest government-sponsored organizations that provide low down payment loan programs like an FHA loan, have increased their automatic underwriting standards. That implies house buyers who were barely able to get a loan approval will need to improve their financial condition before purchasing in today’s market.
Improving your credit score is a smart place to start. The higher your credit score, the lower your rates will be and the less likely closing will be to collapse. It’s also a good idea to put down as much money as you can on the down payment. Even if you don’t use all of it by purchasing a home below budget, you know you have the cash to cover unforeseen expenditures that may crop up during or after the transaction.
It’s also a good idea to get rid of any useless debt, such as credit cards. Some debt is not necessarily bad, but having balances on credit cards won’t help you acquire approval.
2. Get prequalified
In an increasing mortgage rate scenario, it’s critical to make sure your finances are in good shape. Getting preapproved will begin part of the underwriting procedure, but once you’re under contract, it’s vital to verify that the transaction does not go over the rate lock period, which is the length of time during which the mortgage rate terms are locked at a certain monthly payment and percentage.
A growing number of real estate deals fall through, especially when the closing is extended and buyers are no longer able to afford the mortgage payments at a higher rate. To prevent this, don’t make any major purchases that might affect your credit score before closing. Avoid applying for any new lines of credit and, naturally, keep your existing payments up. Lenders rerun your credit prior to closing to ensure everything is in order; therefore any significant changes may influence whether you get approved.
3. Maximize your search from multiple sources
Although you may buy a house without the assistance of a real estate agent, having one can be quite beneficial in today’s fast-paced, competitive housing market. A Realtor can help you broaden your search and perhaps obtain pocket listings from other agents, as well as ensure that the transaction goes smoothly if necessary. Make sure to investigate the agency to verify that they understand how to deal with investors – there’s a significant difference between buying as a homebuyer versus an investor.
In addition to working with a real estate agent, start a free search on the country’s most prominent online real estate websites like Redfin or Zillow and be the first to know if a new property comes on the market that matches your requirements. Competition has decreased somewhat, but there are still many offers still out there, so getting your offer in early will improve your chances of getting it accepted.
The most essential thing to remember is that your budget should serve as a guide. Don’t pay too much because the market is hot. Understand how changes in mortgage rates can affect what you are able to afford, and modify your search to reflect this.