Here’s what you can do now to put yourself in the best position to find your new home this year.
Look at your credit
Your credit score is an important factor in getting a mortgage and the type of loan you’ll get. It also impacts the interest rate you’ll receive and potentially how much money you need for a down payment.
By checking your credit score ahead of time, you’ll know whether you’ll need to make any changes to try to increase that number.
Also, get a copy of your credit report to check for any errors or unpaid bills, which may also affect your credit score. Consumers can get their credit report up to once a week for free from the nation’s three largest credit reporting firms — Equifax, Experian and TransUnion — through April 2022.
Lenders will also look at your debt-to-income ratio, which is the amount of debt relative to your income, when determining your loan.
If you have debt, try to pay it down before you start house hunting, suggests Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors.
Consider using any year-end bonus money or cash gifts to pay it off. If you don’t have debt, put that cash into savings to help with your down payment.
Contact a mortgage lender
Reach out to a lender as soon as possible, at least to ask questions and find out what they need from you in order to preapprove a mortgage, said Kevin Parker, vice president of field mortgage at Navy Federal Credit Union.
“We like members to start off with an understanding of the process,”
You can use online calculators to figure out what you can afford and whether it makes sense to buy or rent. You’ll also want to know how much money you’ll need to bring to closing, since there are fees — known as closing costs — that are due in addition to your down payment.
You can also get pre-approved for a mortgage before you start house hunting, since you’ll need it before you submit a contract for a house.
Draft a budget
Just because you are pre-approved by a mortgage lender for a certain amount of money to spend, doesn’t mean that is your budget. Look at your monthly expenses to determine what you can afford to pay each month. Don’t forget about interest rates, which are expected to rise this year and will therefore increase your monthly mortgage payments. The National Association of Realtors is predicting rates will reach 3.7% at the end of the year, still low by historical standards.
Consider low down-payment options
First-time homebuyers may not be aware that there are options for low down payments, Lautz said.
Federal Housing Administration loans, for instance, offer down payments as low as 3.5%. Check out the U.S. Department of Housing and Urban Development’s website, HUD.gov, and other local resources to see what may be available to you.
“Doing your research beforehand can help you,”