- Get pre-approved
The 2022 real estate market proved to be incredibly competitive for buyers and sellers. While many lost out on dream homes, others made more profit than they thought possible. Especially with mortgage rates surpassing 7% for the first time in 20 years, it is critical to understand what price of a home you can afford before making any assumptions.
If you are a first-time home buyer you may be asking, what is a pre-approval?
The Mortgage Reports explains it like this:
“When you’re ready to take the leap into homeownership, your first step is mortgage preapproval. . . . A mortgage preapproval is when a lender determines you’re qualified for a home loan. Your preapproval letter shows the maximum loan amount you’re approved for (your home buying budget), as well as the specific interest rate and loan term you can expect.”
Looking at 2023, as properties continue to bring in multiple offers, pre-approval will help signal that you are a serious buyer. A recent article from realtor.com notes:
“. . . getting pre-approved can actually improve your chances of falling into the sellers’ good graces, and you’ll want to get it done as early as you possibly can in the home-buying process.”
As the market begins to shift, buyers are hopeful the bidding wars will ease, however, preapproval is still a critical part of making a strong offer.
- Get the lowest mortgage rate possible
The higher the mortgage rate, the higher the monthly payment. While we know interest rates are up, it’s still in your best interest to consider your options and shop the lowest mortgage rate you possibly can. Forbes recently released 5 practical tips for getting the lowest mortgage rate possible. Here is a summary:
- Credit score – the best mortgage rates go to borrowers with a credit score of 760 or higher.
- Loan type – understand the different available loan types and where to shop for each of them. From fixed-rate to adjustable-rate mortgage (ARM) to government-insured loans, there are more options than you might think. Your local bank might also have portfolio loans or specific first-time home buyer loans that could provide a lower rate.
- Debt-to-Income Ratio – DTI is calculated by lenders in order to approve or deny a loan application. The best way to lower your DTI percentage is to clear all debts prior to applying for a mortgage. Another options to lower your DTI could be to lower your interest rates on outstanding loans or shift them to a longer term.
- Down payment – While there are many available financing options for all percentages of a down-payment, having 20% or more equity in the purchase of a home will help significantly with a lower mortgage rate.
- Loan term – A longer loan term, like a standard 30-year, will offer a lower mortgage rate than a 15-year fixed loan. However, this is where ARM loans can be a viable option for a lower interest rate in the short-term.
Despite rising rates, Alabama real estate agent Luke Williams of The Williams Group advises buyers,
“Don’t let the rate scare you away from the perfect house. Prices always rise. The average is 4% a year increase. Buying the house now will cost you less than buying it in 2 years. You can refinance when rates are lower.”
- Get an agent
An agent who understands the market you want to buy in is key to beating out the competition. Most experienced buyers and sellers understand an agent can optimize their profit and are the experts when it comes to creating offers that will incentivize sellers.
Sellers using agents has increased from 54% in 2019 to 77% in 2022. More than completing your contract work, agents are critical for staying educating on the home buying process, can provide an expert review of your home’s expected appraisal, access to advanced technology and a confident advocate for your best interest.
2023 is approaching quickly. If you had plans to invest in real estate for the first time, Williams encourages,
“If you’re a first-time homebuyer and can afford the payment and the costs to buy, BUY! It makes more since to pay down your own mortgage rather than rent and pay down someone else’s.”
Whether your first real estate purchase or your 50th, the rapidly changing market can appear intimidating, but with these three critical steps in mind, it looks like 2023 could still be your year.