Years of record low-interest rates made finding and closing on the house of your dreams seem easy. However, mortgage rates have nearly doubled and show few signs of returning to the low rates many took for granted. The realities of the cost of borrowing and the increases in home values make home buying hard.
Yet, all is not lost for today’s would-be homebuyer, despite what headlines may suggest. Follow these tips to prepare for your home search. Soon you’ll be on your way to landing your dream home.
Your buyer profile will influence the search for your prospective dream home. Just like with today’s dating scene, you’ll need a profile to showcase who you are. However, instead of highlighting your hobbies, your buyer profile focuses on your financial responsibility. First, review your personal finances including your account balances, credit usage, and payment history. This will greatly influence your buyer profile.
If you pay your bills on time, your credit report will reflect your responsible payment history. If you don’t, you may need to reconsider if now is the time to look for a house. Sometimes, your challenge may be systematic and can be addressed by automating payments or improving your budgeting habits. Make improvements where they’re needed, as your creditworthiness and financial habits will impact your ability to get financing.
Next, consider your employment history and plans for the near future. Lenders look at your employment history to determine whether you’re likely to have reliable income to pay back your loan. If you have a job-hopping habit, this may require additional explanation when your lender requests a verification of income. Lenders verify your income with your current employer to get up-to-date, accurate data beyond last year’s W-2.
When you’re house shopping, focus on maintaining a clean credit report and avoid opening new accounts or loans. Taking on more debt and complicating your credit history before an application can reduce your credit score and increase your mortgage rate. Instead, be conservative with your finances, save for your down payment, and avoid changing jobs.
When you decide you want to move, it can be hard to focus on anything else. Suddenly, your cozy apartment is excruciatingly small. Overnight, your historic bungalow is crumbling before your very eyes. Worse yet, the commute you’d been okay with initially has you doing the math on how much time and money you’re wasting.
While you may be clear on the pain points of why you want to move, articulating them can be hard. First, do a brain dump of everything that’s on your mind. If you share a home with someone and plan to move together, have them do it too. Write separate lists then come together to brainstorm. This can help you get your thoughts out that could otherwise be lost in the mix.
Review your lists together, prioritize items, and then keep them visible. Add to them as you live in your space, updating and re-ordering the list for a while. This way, you can remember that getting into your current attic is impossible and your new home needs better storage.
Use your list to define search-criteria-friendly requirements that you can share with your real estate agent. You may have some requirements that aren’t always included in a listing, but keep them in a shared document. Share it with your real estate agent so they can keep these needs in mind as they make suggestions.
In a competitive market, time is one of the biggest threats to closing a deal on your home. While you can’t buy time, you can reduce time-stealing factors in the process. One common threat is having a current home to sell before being able to purchase your dream home. Many people need to use the equity in their current home to cover the down payment. Reduce this risk by saving as much as you can toward your new home’s closing costs.
Beyond the down payment is the financial feasibility of covering two mortgages, let alone being approved for this debt burden. Consider selling your current home as soon as you can to reduce this contingency. You’ll remove the need to put in a contingent offer and will have access to your equity.
Take care of your need for shelter by including rental terms in your seller’s requirements. You can rent your home back from your buyers for a set amount of time at a set rate. This gives you time to close on your dream home without the sale of your current home in the way.
If you’re in the middle of a job search, consider the timing of your home-buying goals. Focus on maintaining your current employment on good terms throughout the home search process. Doing so will help ensure your borrowing process is smooth. If you’re home-searching because of a relocation, work with your employer to ensure your lender has this information. These details can help explain a job change and reduce potential hangups.
You’ve set the foundation with your polished buyer profile and refined your search criteria, and now you’re ready to sign a deal. Your dream home may come on the market tomorrow or months from now, meaning patience and persistence will be key. However, when you’re patient, persistent, and diligent, you’ll be living in your dream home sooner than the competition.