Buying a house in today’s market can seem impossible. 30-year mortgage rates are hovering around 7%, which is more than double what they were about a year ago. The median home price in America is at $427,000, which is over 13% higher than this time last year. Couple those stats with record inflation, and the dream of home ownership can seem out of reach.
There is some hope, however, as demand is cooling in the housing market. This should start to shift the advantage back to the buyer. Here are a few tips to get you ready to buy if you are in the market.
It is good practice to have your personal finances in order before you begin the process of buying a home. This means paying off all consumer debt, saving up an adequate emergency fund and down payment, and having a written budget listing all upcoming purchases that you will be making. Don’t overlook that buying a home often means other major purchases are about to follow. Appliances, furniture, and renovations can all costs thousands.
If you are going to be using a realtor to find a home, then you will want to obtain a mortgage preapproval before you begin the home-searching process. Most realtors won’t work with clients if they aren’t preapproved.
Your credit score, and more importantly, your debt-to-income ratio is something that you will want to keep an eye on. Many make the mistake of making major purchases while the closing process is still pending. There are cases of buyers who have had their mortgage loan rejected because they ran up too much debt while waiting for their loan to be approved. It is best to wait to buy things like furniture and other household items until after your loan closes. It is even better to buy these things with cash and not run up debt for them.
Remember that with mortgage rates near 7%, you have much less buying power than just a short time ago. A loan of $280,000 goes up nearly $500 a month if the rate change from 4% to 7%. To combat this you will either need to save up a larger down payment, buy less home, or try to negotiate a lower price.
Searching for a Home
A realtor can be a huge asset to help find a home and navigate the waters of the legal processes involved in closing on a property. But, many listings on the MLS have a lot of competition and negotiating on price can be difficult.
If you want to try some alternative home-searching tactics, then you can try using some of the strategies that real estate investors use. Many real estate investors don’t buy from the MLS. They look for off-market deals from private owners, auctions, and foreclosures.
Beware that this isn’t for everyone, but you might find a deal that is well below market value if done right. You will most likely have little recourse should something go wrong, and you will most certainly have to do at least some renovations, but you might be able to buy a lot more house than going the more traditional route.
If you’d rather shop for a home via the more traditional route, then keep in mind that the market is still hot in a lot of areas. Deals are starting to appear, so search for homes that have been on the market for a while. Sellers may be more inclined to negotiate on price versus a home that was just listed. Also, don’t get caught up in bidding wars. Overpaying for a home is one of the fastest ways to regret buying it. Even worse, if it starts to cause you financial stress you will quickly grow to dislike it.
Buying a house in today’s market can seem impossible. There are some things that you can do to find a deal though. Patience will be your biggest virtue in this market. Patience to save up a down payment, get your personal finances in order, and properly search for a home. People usually get in trouble when they try to rush the process or try to do too many things too fast.
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Writer and Investor. Based in the Pittsburgh, PA area, Brian holds full-time employment as a Warehouse Manager for an electronics firm. Brian enjoys wealth building, investing, gardening and the great outdoors. Brian holds a B.A. in Environmental Studies from the University of Pittsburgh and an MBA from Robert Morris University.