The pandemic has created a storm in almost every industry possible, and the housing market was no exception. In February, the inventory of homes for sale dropped 48% throughout the U.S. The demand has spiked to a point that it is making the homebuying process very competitive for buyers. By saying the market is competitive we mean this- Buyers are facing challenges in having to offer more than what the seller is asking for so they can outbid their competition.
When the market essentially becomes a Seller’s market, the demand is high and the supply is low. Now with a pandemic thrown into the mix, the supply is lower than normal. If you are looking to become a homeowner this year, you will want to stick around for the rest of this post.
What you need to do to prepare for Homeownership in this volatile market:
- Bring your A game! Make sure your credit is in fairly good standing so you can get approved for not just a lower rate, but a conventional mortgage if possible. Conventional mortgages typically require a 20% down payment, so if you don’t have this- don’t worry! There are other mortgage products like FHA loans that only require 3.5% down payment. Just keep in mind, FHA loans will tack on Private Mortgage Insurance (PMI) that will be added to your monthly payment. Also, be sure to not apply for any new credit or have any late payments once you decide you want to start the homebuying process. ONE late payment can decrease your score by 50-100 points easily.
- BUDGET BUDGET BUDGET– Too many people jump into the homebuying process without sitting down and crunching numbers. In order to do a budget, make sure you are writing down all of your monthly expenses and all of your net monthly income (net= take home pay). Once you figure out the amount of money you have coming in each month compared to what you pay out, you can now have a clearer picture on any adjustments you need to make. This may include, cutting down on services that you no longer use or need, reduce the amount of times you buy takeout, etc. A great rule of thumb to follow is this: your housing payment should not be more than 25% of your monthly income.
- Save and Plan- If you have money saved up for your down payment already, evaluate your finances to see if you can afford to save more between now and when you find the home you want to pursue. Having a bigger down payment will cut your payments down right from the beginning. Please make sure you have a savings of 3-6 months of your average expenses established- this will be for those “unexpected” moments life likes to throw at us. While you are also planning your next steps, consider where you want to move (remember this is long term), look up the taxes in those areas to see if it is affordable, and start looking for financial institutions you may want to get your Mortgage Pre-Approval with.
Typically once you have a mortgage pre-approval, you can start looking around for homes and begin searching for a Real Estate Agent you want to work with. Having a good team from the beginning will help you feel informed and supported throughout the process.
For more information on becoming a homeowner, listen to our recent Two Sense Money Podcast episode, The Road to Homeownership, Pt 1.https://www.buzzsprout.com/1725709/8177328-road-to-homeownership-pt-1.js?container_id=buzzsprout-player-8177328&player=small