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Finding a new home may seem like a daunting task these days.
Prices are rising, inventories are low and mortgage rates are rising.
In this environment, it is therefore worth doing your homework before entering the market. Once you start searching, you have to move at lightning speed to place an offer, explains Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors.
“As interest rates rise, there has been a rush to lock in lower relative rates while the stock of homes is at an all-time low,” she said.
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According to the National Association of Realtors, the average home price rose to $350,300 in January, up 15.4% from January 2021. Houses are on the market for an average of 19 days.
According to Mortgage Daily News, the mortgage rate on a 30-year term loan is 4.17%. At the beginning of last year it was less than 3%.
With that in mind, here’s what you can do now to put yourself in the best position to find your new home.
Learn the language
Familiarizing yourself with real estate jargon like closing costs and home inspections is part of the process. However, learning the language before you get started can help you get moving quickly.
“Your listing will likely compete with other buyers, so check with your agent about what terms like down payment, appraisal contingency, home inspection contingency, and appraisal gap mean before looking at homes,” Lautz suggested.
The deposit is the deposit you pay for the property you want to buy. It shows good faith and the funds are eventually used for the down payment and closing costs. A valuation caveat is a provision in your contract that allows you to withdraw if the valuation price is less than the selling price. This difference between the valuation and selling prices is called the valuation gap.
Similarly, a home inspection gives you a way out if problems arise during the home inspection. In both cases, you can also try to negotiate with the seller instead of getting out of the sale.
With competition so fierce, many buyers have waved contingencies to get a leg up.
Make a list
Write down your “must haves” and your “nice to haves,” said Danielle Hale, chief economist at Realtor.com.
That way, when you need to make a quick decision, you already know what compromises you’re willing to make.
It can also help you in a bidding war that can easily get carried away in a highly competitive market.
“Focus on the goal you’ve set for yourself, like your list of must-haves and nice-to-haves and your budget,” Hale said. “Keep at it. Be persistent.”
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Mortgage lenders will look at your debt-to-income ratio, which is the amount of debt relative to your income, when determining your loan. If you have debts, try to pay them off before you start looking for a home, Lautz advises.
Consider using bonus money or cash gifts to cash out. If you don’t have any debt, put that money into savings to support your down payment.
Know your credit
Your credit rating is also an important factor when applying for a mortgage and the type of loan you can get. It also affects the interest rate you get and possibly how much money you need for a down payment.
By checking your credit score ahead of time, you’ll know if you need to make any changes or adjustments to try to increase that number.
Also, get a copy of your credit report to check for any mistakes or unpaid bills that may also affect your credit score. Consumers can get their credit report up to once a week for free from the country’s three largest credit bureaus — Equifax, Experian and TransUnion — through April.
Talk to a mortgage lender
Contact a lender as soon as possible to at least ask questions and find out what they need from you to pre-approve a mortgage.
Online calculators can help you find out what you can afford and whether it makes sense to buy or rent. You should also know how much money you need to bring with you to close, as there are fees — known as closing costs — on top of your down payment.
You can also pre-approve a mortgage before you start house hunting, as you will need this before you can put on a contract for a house.