After better than a year of being in a hot sellers’ market, the housing market has ever been shifting and has continued to cool down. Late summer has come with new inventory, fewer bidding wars and leveling list prices – all factors pointing to a less hectic Fall buying season.
As a norm, home sales slow and prices drop in the fall. While that didn’t happen in 2020 due to the storm induced by lockdown-related effects on the housing market, we are seeing signs of things trekking back toward more normal seasonality this year.
This is excellent for those who may have gotten fed up with house hunting earlier this year. Now could actually be a really great time to start that process over again. Though interest rates have increased a bit from the incredibly low rates many buyers locked in on last year, they’re still on the lower side of what we’ve seen historically.
Nationally, pricing has calmed a bit and what’s even more telling is the increase we’re seeing in price reductions, indicating sellers needing to adjust their expectations to attract buyers.
Don’t get me wrong, the overall low inventory has us still in a seller’s market but these shifts are definitely in favor of a better market for both sides. The key in any market is being able to lock in on present opportunities. Here are a few tips on how you can do just that.
Check Credit Reports for Errors
Most people buying a home need to secure a mortgage to do so. This means lenders are going to be looking at your credit report and score to not only determine whether they’re willing to extend the loan but what terms you can secure. (Yes, this makes a BIG deal when looking at your bottom line!)
It’s important to prepare for entering the market by taking a look at your report to be sure there aren’t any errors negatively impacting your chances of qualifying for your desired loan. Experian, Transunion and Equifax are three major reporting bureaus from which you can get a free copy of your credit report.
If your credit score is low for legitimate reasons, such as high balances on your credit cards or because you don’t have a long credit history, you can take steps to improve your score. Paying down outstanding debt, keeping your credit utilization rate low and making on-time payments can bring your score up. If you have more serious problems with your credit due to late payments or non-payments, now would be a good time to talk to a solid lender that can advise you and connect you with the experts needed to help you craft a plan to get that score up.
Most mortgage lenders will require a credit score of at least 620. However, to get the most favorable mortgage rates you’ll want a credit score of 740 or higher.
Set a Budget
How much house can you afford? There are a few ways to figure it out.
In general, mortgage lenders will use the 28/36 rule. This rule of thumb says that you should spend no more than 28% of your gross monthly income on housing costs and a maximum of 36% of your gross income on paying debts, including the mortgage. Some lenders, however, will allow for a maximum of up to 43% of gross income going toward debts.
Of course, you don’t need to borrow as much as you qualify for. Once you have a target monthly payment, you can use a mortgage calculator to get a sense of how large a mortgage fits your budget.
You’ll also need to know how much you can put toward a down payment. In order to avoid paying for mortgage insurance (which protects the lender, not you) you’ll generally need to put down 20%. However most borrowers put down less and FHA loans only require 3.5% down in most cases, while USDA and VA loans (for active-duty military and veterans who qualify) can be taken out with no money down.
Shop for a Mortgage Lender and Get Pre-Approved
The rate you qualify for will depend on your credit score, loan size and how large of a down payment you bring to the table.
Many assume that the interest rate offered by one lender will be the same rate you’ll get from every other lender but this is just not true. Qualification criteria vary, so you won’t know what the best rate you can get is until you actually check in on this with different lenders.
It’s typically advised that you pull rates from at least three different lenders. Shopping around for the best rate could save big money over the life of the loan. According to Freddie Mac, borrowers who get one additional quote save an average of $1,500 over the life of the mortgage, but by getting five quotes you save an average of $3,000.
Once you find the right lender, you’ll want to get a pre-approval letter. As an agent, this is something we look for before showing you homes for a number of reasons. We want to be sure we are looking at homes in a budget you can afford. This will also ensure we can act quickly, if needed, to get your offer in on a home you want before someone else has a chance to nab it.
Having your pre-approval will streamline the mortgage application process and tell sellers you are a serious buyer ready to close in a timely fashion. Honestly, if you are serious about buying a home, there is no reason I can think of to not do this.
What Type of Financing Works Best for You?
In the current market, preference is still given to cash then conventional loans next due to seller perceptions as to the strength of the elected financing. This has created some challenges for buyers with FHA, USDA and VA financing in the more competitive market noted over the last couple years, especially late 2020 through 2021.
HOWEVER, this is not to say that you can’t get the deal done with any financing option. Teaming up with the right agent can make all the difference here as it’s not just the type of financing that lands the winning offer. Whatever the financing you’re working with, I’m personally happy to help you come in with a beautiful offer that gives you the best possible shot at getting the home you really want.
Have a Sense of What Local Homes are Worth
Many people over the last couple years, hearing all they have about the market, have come under the impression that people are just overpaying for houses and are stacking that perception with the expectation that home values are going to suddenly tank, leaving people with homes worth much less than what they paid for them.
While there will surely always be the exception, that is just not what we’re seeing nor what experts project to be the case.
Home prices are influenced by a variety of factors, including the economy. Current economic uncertainties have led some to assume that home values are going to fall but experts continue to project that there will be an expected, normal increase in home values.
The great news is that you don’t have to guess – as an agent, I keep a pulse on the market to help my clients make informed and empowered decisions in buying a wonderful home that fits their lifestyle and financial goals.
It’s important is that you look to buy something you like, something you feel good living in and in an area you feel good about. We are so blessed that Lancaster County has so much to offer that does just that. If you’re interested in finding a new home here, I would love to talk to you about how I may be of help.
Look forward to talking to you soon!