So you want to buy a home. But how do you prepare for the crazy competitive seller’s market we’re currently in? And what is a seller’s market, anyway? A seller’s market refers to when the real estate market has more buyers than sellers. So how can you prepare for this market to make sure you have an edge over your competition?
Get to know your finances.
It’s important to know where you stand with your finances. While there are many aspects of your finances you should be aware of, we’re going to focus on three components: Credit Score, DTI, and savings.
Your credit score is important. Mortgage companies use it to help determine how much it will cost to borrow money for your home. Sometimes a few points on your credit score can impact your monthly mortgage payments, so you want to make sure you’re credit is in tip-top shape before you apply for your mortgage.
For example, most lenders use the FICO credit score. If you’re at 800 or higher, you’re considered to have exceptional credit, while 579 or lower is considered poor credit. There are plenty of ways you can work on improving your credit score prior to applying for your mortgage. Check out this blog for more: https://www.bankrate.com/mortgages/how-your-credit-score-affects-your-mortgage-rate/.
You also want to familiarize yourself with what your estimated DTI is. What is DTI? It stands for debt to income ratio. It’s another factor that mortgage lenders use to determine your rates. To calculate a DTI estimate: (Monthly debt/current monthly gross income) X 100. You can also find plenty of DTI calculators if math isn’t your favorite subject.
A DTI of 20% or less is what the Federal Reserve considers a low DTI. A DTI of 40% or more is considered high and could be signs of the borrower being someone who has signs of financial stress.
How much cash you have saved up for your home is important. Transaction costs can include money for your earnest money deposit, money for your down payment, and money for closing costs. Outside of the transaction, you’ll also need to consider things like moving costs (storage space rentals, boxes, tape, truck rentals, moving companies, etc.). It’s important to be aware of these costs and how much money you have for them before you apply for your mortgage.
Gather paperwork ahead of time.
You’ll want to gather your paperwork before you start your home search. This helps you from scrambling last minute to find something important that could delay closing. Financing issues account for 37% of delays to the closing table (according to NAR). To avoid any delays in getting your dream home, make sure you have all these documents available.
Important documents include: Pay stubs, W2s, 1099s, bank statements, gift letters (if applicable), address/rent history for the past 2 years, employment history, proof of any other income, Child support/alimony, debts like car loans, current home mortgage, credit cards, student loans info, non-liquid asset info like life insurance, debts, and information on stocks & bonds.
Ask questions and get answers.
When you’re looking for a real estate agent, be sure to ask questions. Your agent is your partner and home buying resource throughout this home buying experience, so you’ll want to make sure they are a good fit.
Ask agents about their communication preferences, familiarity with your area, and how long they’ve been in the industry. Your agent should be able to have a dialogue with you to make sure that you both have the same expectations.
Do a little detective work.
Your agent can be a great resource, but you should always do a bit of research on your own to determine what it is you want in your future home. Ask yourself if you’re looking for your “starter home” or if you’re ready to find your “forever home.” Look at neighborhoods and what style of home you’re interested in. Decide what’s important to you in a new home, whether it be your morning commute to work or proximity to nearby amenities.
It’s also important to determine what you want vs. what you need in your future home. What features do you absolutely need to have in order to live your day-to-day life, and what features would be nice to have, but not a necessity? Check out our blog on wants vs. needs to determine what your list looks like: Wants Vs. Needs
Make sure you get pre-qualified for your mortgage.
Pre-approval in today’s market is not only a suggestion, it’s often a requirement. Pre-qualification is important for all potential buyers. You can even check out HUNT Mortgage’s Pre-Purchase Commitment program, which is a great way to show a seller you’re serious about your offer. It provides a fully underwritten commitment, subject only to collateral conditions and to reassure sellers, HUNT Mortgage backs its commitment with a $1,000 guarantee*. If a buyer does not close on a transaction due to the buyer’s mortgage application failing, we will pay the seller $1,000. The guarantee distinguishes HUNT customers from other buyers a seller may be considering.
Buying a home can be intimidating, especially when you’re a buyer in a seller’s market. However, with the correct preparation and agent, you can make the entire experience less stressful, and even enjoyable. While it is a red-hot market, there’s still plenty of opportunities for you to find your perfect home.
Disclaimer: *The guaranty is null and void if: a) The property is not deemed acceptable collateral for the loan due to value and or condition; b) The buyer or seller willfully cancels the transaction; c) The buyer voluntarily terminates employment and or voluntarily divests assets prior to closing; d) The buyer takes out new credit after the Pre-Purchase Commitment is issued; e) The seller is unable to deliver clear acceptable title; f) Guaranty is only on owner occupied single family transactions; g) The transaction does not close due to a contract contingency not being met other than the mortgage financing; h) Pre-Purchase Commitment was issued with maximum specific sale price and taxes, guaranty is void if either of these are exceeded; i) The contract closing is dated past the expiration of the Pre-Purchase Commitment. Guaranty is only on Pre-Purchase Commitments issued by HUNT Mortgage