The housing market remains hot this fall.
Competition is fierce, with fewer homes for sale and plenty of cheap financing available. Sellers are getting an average of four offers on their properties.
In each month from March through October 2021, the typical U.S. home spent fewer days on the market than in the fastest-selling month from 2016-2020, according to a new Realtor.com report.
Homes are also more expensive. The median listing price last month reached $380,000, 9% higher than in October 2020 and 22% higher than in October 2019.
We spoke to Andy Taylor, vice president and general manager for Home & New Ventures at Credit Karma, the personal finance company, for tips on things to consider before you make your offer.
What can you afford in this housing market?
For a preliminary understanding, there are numerous free services online that will help you understand how much you can afford to pay for a house, and what your estimated monthly payment will be.
Once you’ve done that, get pre-qualified or pre-approved based on where you are in the housebuying process. If you’re in the beginning stages of your homebuying journey, and just want to determine your budget, getting prequalified will give you an estimate, and won’t result in a hard inquiry on your credit report.
If you’re further along in the process and plan to purchase a home in the next few months, getting preapproved is recommended. Getting pre-approved gives you an idea of how much you can borrow, how much home you can afford. The process could even shed light on potential roadblocks that would prevent you from getting a mortgage, so you can address those issues before trying to purchase a home.
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Don’t get pre-approved for a home loan too soon
Once you complete the pre-approval process, you’ll receive a pre-approval letter from your lender, which is usually good for 30 to 90 days. Since that’s a relatively short period, you may want to wait to get pre-approved until you’re ready to start seriously shopping for a home. That way, you avoid having to redo the process over and over again.
“There aren’t a lot of homes out there right now, and the sellers have the upper hand, so getting pre-approved is more important than ever to show a seller that you’re serious and can move fast if you find the home of your dreams,” Taylor says.
Shop around for a mortgage
Taking the time to shop around could save you tens of thousands of dollars over the course of a loan. Try to get quotes from a handful of lenders before you commit. Shopping is a way to empower yourself and increase your chance of securing a rate and fee combination at the low end of the range. The more your shop, the better your expected outcomes are.
Prioritize good credit
Increasing your credit is one of the best ways to improve your chances of being approved for a loan with better terms.
A credit score is a number between 300 and 850 that shows a consumer’s creditworthiness based on their bill payment history, current debt and other financial information. A high score could mean lower interest rates on a loan as lenders feel more confident that a borrower will repay their future debts.
Although it’s possible to get a mortgage with a low credit score, it comes with higher interest rates and unfavorable terms that could make it difficult to repay. Having good credit is especially important in today’s lending environment.
Know the true cost of homeownership
Saving for a down payment and monthly mortgage payments is not representative of how much it costs to purchase and own a home. Common costs first-time homeowners don’t always consider when making a budget include your APR (annual percentage rate), which encompasses all the costs of financing a loan, such as private mortgage insurance, which most lenders will require if you put less than 20% down on the home.
Other common costs include closing costs, cash reserve requirements, property taxes and home repairs/maintenance costs.
“In today’s seller market, driven by low inventory and high buyer demand — prospective buyers should prepare to over-budget for the house they have their eyes on, as they will likely need to pay over asking price in many housing markets today,” says Taylor.
“They should think about the highest amount they are willing and able to pay.”
Don’t have your heart set on the first home you see
This is an especially important warning given the current seller’s market. It’s not unusual for realtors to see their prospective buyers getting attached to the first home they see.
“The ‘I have to live in this home, I won’t find anything I like as much’ mentality can heighten emotions and lead to buyers overpaying on a home or purchasing a home they cannot actually afford,” says Taylor.
Swapna Venugopal Ramaswamy is the housing and economy reporter for USA TODAY. Follow her on Twitter @SwapnaVenugopal
This article originally appeared on USA TODAY: Tips for potential buyers in hot housing market
