Even though all signs pointed towards the housing marketing cooling-off earlier this summer, many Americans are still finding themselves priced out of the market. In July 2021, housing price sales were up by 2 percent. This was followed by a rapid decline in August. Although pending sales hit a 7 month high, applications for mortgages fell, mortgage rates rose to 3.10 percent and many aspiring homeowners found themselves priced out of the market. Pressure is also rising on the economy and developers to make the home owning dream more affordable as many more people shift to permanently working from home. For the consumers aiming to own a home in this highly volatile market, their approach to the process is immensely important. Spending time preparing yourself as much as you can before trying to buy a home means you have the best chance of succeeding- and avoiding the pitfalls most first-time homebuyers are facing in this market.
Focusing On A Select Few Lenders
Mortgage lenders know that the market is tough for buyers right now. It is also extremely competitive for lenders and homebuyers that use this to their advantage can normally negotiate a better interest rate on their mortgage- a key concern stopping many from affording a home. There is no better time to ensure you do comparison shopping before applying for a mortgage. It is recommended that you speak to at least 3 lenders before making an application. Ask key questions like how much money you need to put down, what the interest terms are and what your estimated closing costs will be. Also, look out for any hidden fees with mortgage lenders like early repayment costs.
The 20 Percent Down Payment Rule Is In The Past
Traditionally, most lenders require a downpayment of at least 20 percent. However, with more Americans finding themselves cash-poor, lenders have become a lot more flexible on their down payment requirements. According to The National Association of Realtors, 73 percent of people who bought a home in November 2020 put down less than 20 percent on their homes. In some areas, the down payment requirements can be as low as 3 percent. However, while this is good news for those struggling to save a downpayment, you should also know that a housing deposit of less than 20 percent also comes with additional stipulations and fees like Private Mortgage Insurance (PMI). If you can not manage a 20 percent down payment and are looking to avoid private mortgage insurance, USDA and state-supported downpayment assistance programs can help.
Don’t Underestimate The Link Between Your Application And Credit Score
Almost 40 percent of Americans do not know their credit score. However, when applying for a mortgage your credit score will not only determine whether you are approved but also influences the interest rates you are offered. Many potential homeowners admit to not knowing just how important their credit is in the lead up to applying for a mortgage. One good example of this is the opening of new credit cards or loan accounts in the year before applying for a mortgage. Before applying for pre-approval, work on improving your credit by paying down your balances and keeping your credit utilization below 30 percent. It is also important that you keep your credit file consistent from being pre-approved to closing on your home.
The housing market has not been this tough for buyers in decades. Because of the heightened costs and barriers, many Americans are dropping out of the race to be on the property ladder. Those who do choose to go ahead in this market are finding themselves either outpriced or competing with tens of other buyers. By taking the time to explore your options, spend time building up your credit, and navigate the 20 percent down payment rule, you give yourself the best chance of succeeding as a homeowner.