With housing inventory far lower than demand and mortgage rates poised to rise, it’s going to be a competitive market for homebuyers this spring.
If you’re looking to buy a home this season, here’s how to prepare yourself to enter the fray.
1. Get your financial house in order
Unless you plan on paying for the house in cash, you’ll need to apply for a mortgage. No matter how streamlined the process is, you’ll still need to gather a significant amount of documentation to give an accurate financial picture to the lender.
Before you even begin house shopping, look at your credit report to make sure there are no errors that could affect your score. Also, pay off any delinquent bills and reduce any other debts you owe so that your debt-to-income ratio (DTI) is favorable. Use a calculator to figure out your DTI and see if you need to make changes. Your goal is to look as attractive to lenders as possible so that you are you approved and can get the best rate on a loan.
2. Make sure you’ll qualify for a mortgage
In order to get a mortgage, lenders want to know you’ll be able to meet your monthly obligations no matter what. This means they’ll ask to see your entire financial situation including employment history, salary, savings, investments, debts and anything else that makes up your net worth. Use a prequalifying mortgage calculator to get an idea of what size loan is right for your needs.
Even if you think you’re a strong candidate, never assume you’ll automatically qualify with the first lender you contact. Lenders’ guidelines have become stricter since the housing crisis of 2008, and you could lose out on the house you want if you can’t close on a loan.
“Sometimes one deficiency can be offset by another strength. For example, if you have a higher DTI ratio, saving up enough to put a bigger down payment can help,” says Bill Banfield, executive vice president of capital markets for Quicken Loans.
3. Choose the right Realtor
Unless you’re a seasoned pro, having a Realtor on your side can make a big difference.
“An experienced agent will know what could happen that might make a deal fall apart and how to keep that from happening,” says Dori Summer, a real estate agent with Keller Williams Realty in Coral Springs, Florida.
Making an offer on a house in a competitive market can require more than just a willingness to pay the price. If a seller has to choose between multiple buyers, they’re likely to choose the one that’s coming to them with the best overall package. A good agent will present your offer along with other information, including your ability to get a loan, how much you’re able to put down and anything else that might make you more appealing than someone else vying for the same property.
4. Be prepared to pay the price
Home prices in close to two-thirds of the housing market are at an all-time high, according to a February 2018 report by the National Association of Realtors.
“Sellers in this current market get at least 95 percent of their asking price,” says Samona Rosenberg, a licensed real estate agent with Stein Posner Real Estate Services in Boca Raton, Florida.
If you see the house you want and you know it’s in your budget, it may not make sense to hold out to see if the price will drop.
“The best properties all have multiple offers,” says Erik Williams, a Realtor with Keller Williams Realty in Cambridge, Massachusetts. “If it’s a desirable property, it’s desirable to buyers. The people that I see get places under agreement are the most prepared people and the most aggressive.”