Purchasing a home in 2022 was a wait-and-see game as potential purchasers waited impatiently for the cost of homeownership to decrease. Over the span of a year, mortgage rates more than doubled, and housing values rose at unprecedented rates.
The following year holds hope as experts anticipate a slight cooling in mortgage rates, property prices and buyer competitiveness. But there are some actions you may do to become ready. Here’s are the
Steps to Take If You Want to Buy a House in 2023, if that was your New Year’s resolution:
1-Set Up a High-Yield Account for Your Savings:
According to Danielle Hale, the senior economist at Realtor.com, if you want to purchase a property within the next year or two, “you’ll want to keep your savings somewhat liquid because you want your money to be there when you need it.” Put your cash reserves, closing costs, and down payment into a high-yield account that you can access. For instance, savings and certificate of deposit (CD) interest rates have been growing recently, so you might obtain a good return on your investment.
Additionally, you might wish to increase your funds in case a recession or unemployment concerns materialise in 2023. Three to six months’ worth of costs are what some personal finance gurus advise keeping in your emergency fund. These costs include your forthcoming mortgage payment as well as essentials like food, energy, your phone bill, travel expenses, and everything else you might require to maintain your financial stability.
2-Look over your credit:
At the end of 2022, mortgage rates were somewhat around 7%, but if you have good credit, you might be eligible for a lower rate that will save you money. Get a sense of your situation before speaking with a bank, advises AJ Barkley, head of neighbourhood and community lending at Bank of America. “You don’t want any shocks when you are ready to talk to a lender,” he says.
Visit AnnualCreditReport.com to access your free credit reports up to once every week through 2023. Your credit score can be negatively impacted by errors (such as incorrect account balances) and identity theft (such as accounts that were falsely started in your name), therefore you should challenge them as soon as possible.
You may also be able to check your credit score for free if your bank or credit card company provides this service. Most mortgage programmes require a minimum credit score in order to be approved for a loan. If yours is below average, work on raising it before requesting a preapproval.
3-Establish a Budget:
You can better understand how much you can borrow by getting preapproved. A lender pulls your credit during the procedure and verifies your income, debts, and assets. If everything is in order, the lender issues you a letter outlining your borrowing capacity as well as the anticipated interest rate. According to Barkley, you can borrow less than the maximum amount you are eligible for if that is what you feel comfortable with.
She advises that as a general rule, you should multiply your monthly income before taxes by 28%. When taxes, homes insurance, and private mortgage insurance are included in, “the final monetary number is often how much a tolerable monthly payment might be.”
Therefore, an affordable monthly housing payment is about $1,700 if your gross monthly income is $6,000 before taxes, for example. If you have other high-cost needs, like child care, you can even strive for a smaller home payment, according to Hale.
According to Lisa Frison, Citi’s head of financial inclusion and racial justice, you should also take into account the whole cost of homeownership. According to Frison, these expenses could include homeowners association dues, lawn care, regular repairs, and renovations. These items can build up and cut into your monthly cash flow. “Considering all expenses can help you make sure you can not only get into the home, but stay there.”
4-Ask for help with the down payment or closing costs:
With down payments starting at about 3% and closing charges ranging from 2% to 5% of the home’s price, the upfront costs of a home loan are influenced by the purchase price of the property. Additionally, the amount of money required up front has increased as a result of the rise in housing prices across the U.S. in 2022.
However, you might be eligible for a programme that provides down payment or closing cost assistance. These programmes sometimes take the shape of grants or low-interest loans. Lenders, federal, state, and local housing authorities, as well as local housing authorities, all oversee these programmes. Research the programmes available in your area and which lenders accept this kind of financial aid because each programme has various offerings and conditions.
5-Keep an eye on market trends:
When looking for a property, it’s a good idea to speak with a real estate agent because every housing market is unique. According to Hale, they can “provide you the specifics on what’s been typical in your home market.” Inquire about:
1. Housing costs:
Mortgage rates are rising, which reduces buyers’ ability to borrow money and puts less demand on sellers. As a result, some sellers are reducing their asking prices or taking lower offers.
Realtor.com forecasts a 20% increase in overall inventory in 2023, however home supply will remain constrained compared to pre-pandemic levels. Finding a home within your price range could be simpler if there are more houses for sale in your neighbourhood.
3. Power in negotiations:
You “are more likely to find greater negotiation room in 2023” because home prices and inventory are moderating, according to Hale. Sellers “are more inclined to accept stipulations like home inspections, appraisals, and financing,” according to another study.
6-Set a Competitive Interest Rate:
At the start of 2022, the 30-year fixed mortgage rate was typically around 3%, but by the end of the year, it had risen to more over 6%. Although it’s impossible to predict with certainty how mortgage rates will perform in 2023, some analysts think they’ll behave moderately. For instance, according to Fannie Mae, interest rates on mortgages will decline to 6.6% by the first quarter of 2023 and 6.2% by the year’s end.
Other analysts predict that rates will first move in the opposite manner. According to Hale, mortgage rates will likely continue to rise until the first half of 2023. At that time, mortgage rates should start to permanently decline since we’ll be closer to the end of the Federal Reserve’s tightening cycle.
Lower purchasing power is a result of higher interest rates. So use a mortgage calculator to start determining which properties you can afford. Set a budget based on current rates, but also think about what would happen if they increased by another quarter or half point, advises Hale.
Consider comparing quotes from at least three financial institutions because interest rates differ significantly amongst lenders. By locking in your rates, you can reduce your exposure to rising interest rates. Even better, some lenders permit you to pay a fee to prolong the lock period or reduce the rate if market rates fall during the lock time.