Today’s housing market continues to be a dream for sellers and a challenge for buyers. Home prices rose dramatically in 2021. According to the National Association of Realtors, the national median home price hit an all-time high last year at $362,800. Those high prices are fueled by record high demand (lots of potential buyers) and low inventory (few sellers).
Many sellers have had multiple offers on the first day their house was listed, sometimes significantly over asking price. In this environment, a first-time home buyer needs to be prepared to act fast so they can get the house of their dreams. Here are some helpful tips to ensure you’re ready and able to buy.
Check and improve your credit
Some people rent instead of buying because they have no credit (such as a recent graduate just starting their first job) or a low credit score which prevents them from getting a loan. Check your credit score from one of the nation’s largest credit reporting firms – Equifax, Experian, and TransUnion. If you have less than perfect credit, consider the following tips to build it back up:
- Make timely payments on all loans and lines of credit
- Don’t apply for additional credit
- Don’t use your credit cards for more than 30% of your available limit
- Check your credit report and dispute any errors
A good credit score can help you get lower interest rates and better loan terms.
Lower your debt-to-income ratio (DTI)
Basically, your DTI ratio consists of how much you spend paying off debt every month, such as credit card bills, car loans, student loans and past mortgages. If you spend a large percentage of your income paying off debt, lenders consider you a high risk for your ability to pay off a home loan.
Lower your DTI ratio by paying down debt and avoiding additional credit and big purchases. Also, if you have a spouse with a high DTI, but yours is low, consider leaving your spouse off the mortgage application.
Create a budget
Just because you are pre-approved for a certain amount, doesn’t mean that you can actually afford to spend that entire amount. Look at your monthly expenses versus income and determine how much of a monthly mortgage payment you can afford. Also, keep an eye on interest rates, which are expected to go up this year which will increase your monthly payments. You may want to try to buy before that happens to lock in at a lower rate.
Valley helps homebuyers
If you’re interested in buying a home in today’s challenging market, Valley can help. Sign up for our Journey to Homeownership Webinar for more helpful information to help you land the home of your dreams. Attendees will receive valuable information on determining whether you are ready to buy, tips on ensuring your credit remains strong and special low down payment options for various subgroups. You can also apply for your mortgage faster and easier than ever before with Valley’s My Mortgage App, or reach out to one of our Home Loan Consultants today.