Many people are eager to become homeowners — despite the challenges involved.
You’d think home buyer activity would be sluggish in the midst of a pandemic that’s spurred one of the most extreme economic crises of our time. But actually, as of 2020’s fourth quarter, 15% of Americans were considering the purchase of a new home, according to the National Association of Home Builders. Not surprisingly, millennials saw a notable jump in home-buying interest, with 27% saying they’d like to buy, up from 19% a year prior.
If you’re eager to buy a home in the near term, this year may be a good time, what with mortgage rates sitting near historic lows. But if you’re going to look to buy, be sure to do these things first.
1. Check up on your credit
Snagging a low interest rate on your mortgage is a good way to keep your ongoing housing costs down. But you’re more likely to get a great rate if your credit score is in top shape. For the most part, that means having a score in the mid-700s or above. If you’re not there yet, it pays to work on bringing that number up, whether by paying all incoming bills on time or checking your credit report for errors and correcting those that work against you.
2. Pay off some existing debt
The lower your total debt load, the lower your debt-to-income ratio will be, and that’s a measure lenders look at when determining whether you qualify for a home loan and what your interest rate will be. Paying off your credit card debt is an especially wise move if you’re shopping for a mortgage, because not only will that lower your debt-to-income ratio, but it could help your credit score improve.
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3. Research your target housing market
Home prices have been inflated over the past few months due to limited inventory and a surge in buyer demand. As such, you may be shocked to learn that starter homes in your ideal neighborhood are selling for $30,000, $40,000, or $50,000 more than they were a year ago. That’s why it’s important to do your research and make sure you can afford today’s heftier price tags. You may, depending on what you find, need to sit tight on your home search for a while or otherwise start looking at different neighborhoods to buy in.
4. Develop a strategy for making an offer
These days, buyers are constantly having to outbid one another to get sellers to accept their offers. If you’re ready to move forward with a home purchase, figure out what you’ll do to give yourself an edge. Maybe you’ll offer a seller a nice amount of money above his or her asking price. Maybe you’ll agree to a quick closing, or a delayed closing. There are different strategies you can employ, and if you’re working with a real estate agent, he or she can also help you come up with ideas that increase your chances of success. But in today’s market, you definitely need a game plan.
While 15% of Americans may want to buy homes in the next year, whether or not they get to do so will depend on a number of factors. It’s important to make sure you’re a strong mortgage candidate, but also, be realistic about the state of the market. You may decide to put off your home search until 2022, and while that may mean delaying a key life goal, it could also mean finding a more affordable, suitable home for your budget.