What You Should Do If You're Planning to Buy a House in the Next 6 Months or Year

December 9, 2022

Quick Mortgage Quote

Maggie's Insights on What You Should Do to Prepare for a Home Purchase

You've been scrolling through Zillow for months, daydreaming about what your life would be like as a homeowner. The time has come to make your dream a reality. Congratulations! Homeownership is a fantastic accomplishment. Before packing up and scheduling the movers, you should prepare a few things.

Here are six tips for preparing to buy a house if you're six months or a year out.

1. Keep your credit card utilization low

Credit is the most important factor for qualifying for a loan. Your credit score impacts the loan costs the most out of any other qualifying factor. It doesn't matter how much money you make — if your credit score isn’t solid, few lenders will feel confident funding your loan and if they do, you will get a much higher interest rate than if you had good credit.

If you have a credit score of 740 or higher, you are eligible for the best pricing available. Your payment history will really affect your credit score and so will a bunch of inquiries. Opening a secured credit card will not negatively affect your credit initially the way that opening other new accounts does because you are using your own money to secure the credit card.

Keep your balances owed on all your credit cards at 30% or lower than the credit limit per card. If you have a credit card with a $1000 limit, you should owe at most $300. Pay your credit cards off entirely if you can. Those who overuse their credit cards and demonstrate poor spending habits before applying for a mortgage may find it challenging to secure the best available rates. We highly recommend keeping balance utilization low and striving to keep your credit score as high as possible.

2. Don't open a bunch of new debt

Speaking of which, you can hurt the credit score you've been working hard to build by taking on new debt. Applying for a mortgage is a financially sensitive process, so lenders want to feel confident that you're not over-leveraged. Lenders may be wary of approving a loan for someone recently taking on new debt, such as a car payment, another home loan, or a large purchase.

Why?

When you have other large debts on the books, lenders may question your ability to make consistent payments on a new mortgage. If a bank or private lender does approve your home loan, it's likely to come with a higher interest rate.

3. Seek professional mortgage guidance

Do you feel you need more confidence about tackling the mortgage application and financing process all on your own? That's okay! There's a reason mortgage brokers exist, and it's not just to give you loan options. A mortgage broker can objectively look at your financial situation and credit score, find the best fit for a home loan, and help you understand the home-buying process.

Get with a mortgage broker early in your home-buying process to determine your purchasing power and what you need to work on. A mortgage broker like Maggie will be able to tell you how much house you can afford based on your current income and debts and steer you in the right direction to get qualified and approved.

Contact Maggie today to schedule a consultation.

4. Save as much money as you can

This one goes without saying, but it's critical to securing a mortgage nonetheless. You'll need to start saving now to come up with a down payment (it can range anywhere between 3% on conventional loans to 20%+ of the purchase price for Jumbo loans). Not only that, but many lenders will require that you have cash reserves equal to two or three monthly mortgage payments to qualify for a loan. Having a track record of smart financial decisions will work in your favor, and it all starts with how well you've been saving your cash!

Some best practices for saving:

Start an emergency fund if you haven't already.
Utilize side hustles to bring in extra income.
Cut back on unnecessary expenses and live within your means. Don't spend to impress others.
Set up automatic paycheck savings in your bank accounts to save a portion of each paycheck without even thinking about it.
Go through your credit card and bank statements to see what you’re spending your money on such as subscriptions or other unnecessary expenses
Speak with family and friends to see if anyone will co-sign your loan or gift you money for your home purchase

You’ll need your minimum down payment, plus about 2-3% of the purchase price for closing costs, as well as money to furnish the house and do any repairs, if necessary. You always need more money than you expect, so account for those other things now so you can budget properly.

5. Be ready and willing to negotiate

Homebuyers who are open to offering at least the asking price can lock in a bunch of concessions from the seller. Those willing to go above asking can get even better concessions to come out on top of a transaction. Sellers in this market are simply more inclined to offer concessions to buyers as long as you’re making reasonable, competitive offers on their properties. We see it all the time! Concessions include (but aren't limited to):

Paying for closing costs
Making repairs that are needed before move-in day
Including furniture or other items with the sale of the home
Offering a quicker closing date so you can move in faster

In this market, you aren't having to offer more than the asking price to get concessions, you pretty much have to come in at the asking price. Ask for other options like 2:1 buydowns — more info on that here.

In the end, you may end up paying less than you would if you hadn’t been open to negotiation. It can't hurt to ask, and you may be surprised by the outcome.

6. Understand the limits of your budget

Determine how much money you can put down towards your home purchase (that includes the down payment plus closing costs) and what you are comfortable with paying monthly before making a final decision to apply for financing. Whether you're buying a home by yourself or purchasing a property with your significant other, a business partner, or a family member, deciding what your realistic budget is will be critical to making wise financial decisions throughout the process.

When determining how much you can afford, get with your mortgage broker to talk about all aspects of the monthly payment PITI (plus MIP or HOA dues) as well as trash, utilities, landscaping or cleaners, and other monthly expenses that don't get factored into your monthly payment.

Final Thoughts

There's no right or wrong answer when deciding when the time is right to buy a house, but if you're planning on doing so in the next six months or year, it's crucial to start preparing now. The right time to buy a house is when you can afford it! Don't be as freaked out by interest rates, because it's all about your monthly payment, not necessarily the rate itself. Date the rate, marry the house. Get into a loan and payment that you are comfortable with now and when interest rates drop later, you can refinance into that lower rate and new payment.

By following these tips, you'll be well on your way to homeownership in no time. Contact Maggie today to learn more about the financing process.

< Older Post Newer Post >

What our customers are saying:

Share this post:

A Closer Look at Core Inflation's Grip on Mortgage Rates

February 21, 2024

Explore how core inflation impacts mortgage rates and what it means for Lake Tahoe homebuyers in 2024.

Your Guide to 2024 Mortgage Rates: When Will Rates Finally Come Down?

February 2, 2024

Now that 2024 is here, let's talk about something on everyone's mind: mortgage rates. Last year was a rollercoaster, and we're all wondering where rates are headed next. Understanding these trends is crucial if you're dreaming of a cozy cabin or a lakeside retreat here in our beautiful Tahoe area. We’re here to walk you through what the market suggests will happen with 2024's mortgage rates and what it means for your home buying, selling, or refinancing plans. Let's work together to navigate the complexity of this high-interest mortgage market and make your Tahoe home dreams a reality! Recent Trends in Mortgage Rates – A Quick Recap 2023 was quite the year for mortgage rates , hitting highs we haven't seen in a while. But as we entered the new year, things started looking slightly different. Rates began to cool off, and we're all feeling a bit of relief. This shift is especially interesting for those of us in the Lake Tahoe area. Whether you're thinking about buying that dream home by the lake or refinancing your current spot, these rate changes are big news. Let's take a quick look back at how we got here and what it might mean for our local housing market. Start of 2023: A Steady Descent Early Year Trends: The year kicked off with a gradual rate decrease, starting from 6.48% in January and slightly dipping over the following months. Signs of Stability: This period hinted at a stabilizing market, offering a glimmer of hope for buyers and sellers in the Tahoe area. Mid-Year Surge: Rates Climb Summer Spike: As summer approached, the rates started climbing, peaking at a daunting 7.79% in October — the highest point in 2023. Market Response: This surge impacted the housing market, with potential buyers re-evaluating their plans amid these rising costs. Year-End Relief: A Downward Trend Cooling Off: The end of the year brought some relief , with rates gradually declining to close the year around 6.61%. Market Rebound Hints: This rate decrease started breathing life back into the housing market, stirring interest among potential homebuyers again. 2023 fluctuations in the mortgage market impacted the decisions of buyers and sellers throughout California, Nevada, and the rest of the country. So, we recommend keeping an eye on the Fed’s plans for interest rates for this year. By understanding trends in the market, you’ll be able to plan your next move in the real estate world much more effectively. Federal Reserve's Role and 2024 Mortgage Predictions The Federal Reserve's decisions have a notable impact on mortgage rates. In their December 2023 meeting , their move to pause rate hikes marked a change in the economic climate. To combat inflation, they’ve implemented a strategy involving gradually reducing its substantial balance sheet, which exceeds $7.7 trillion. Specifically, the Fed plans to decrease its holdings by allowing up to $60 billion in Treasury securities and $35 billion in agency mortgage-backed securities to mature monthly without reinvestment. This approach is part of the broader economic measures to stabilize inflationary trends. What this means for you as a homebuyer: The Fed's actions could lead to more stable and potentially lower mortgage rates, making it a more favorable time to consider purchasing a home. Together, we'll explore what this means for mortgage rates in 2024, especially for those in the Lake Tahoe area. Federal Reserve's Influence on Mortgage Rates Rate-Hike Pause: This decision in late 2023 suggests a shift towards stabilizing the economy. Indirect Impact: The federal funds rate indirectly affects mortgage rates. This pause is expected to bring some predictability to home financing. 2024 Mortgage Rate Forecasts Analysts predict a stabilization or slight decrease in rates, a positive sign for borrowers. Predictions suggest rates could stay within the 5.5% to 7% range, a decrease from 2023's highs. Fannie Mae projects ~7% rates throughout Q1 with a steady decline throughout the year as home sales and mortgage originations slowly recover . Local Impact in Tahoe: Such trends could invigorate the real estate market in Tahoe, benefiting both buyers and sellers. Understanding these predictions and the Fed's role is essential for anyone planning to buy, sell, or refinance in the Tahoe region in 2024. When to Refinance Home Loans: Is 2024 the Right Year? Trying to figure out when to refinance a home loan? We can help you navigate that process. Deciding whether to refinance your home loan in 2024 hinges on several factors, including the trajectory of mortgage rates, your current financial situation, and long-term housing plans. With predictions of rates stabilizing or slightly decreasing, 2024 could present opportune moments for refinancing. Assessing Mortgage Rates: Monitor the rates throughout the year. A rule of thumb is to consider refinancing if you can secure a rate ~1% lower than your current rate. Personal Financial Health: Evaluate your credit score, debt-to-income ratio, and overall financial stability. These factors will influence your eligibility for favorable refinance rates and help streamline the approval process . Long-term Goals: Think about how long you plan to stay in your home. Refinancing usually makes the most sense if you intend to stay long enough to recoup the closing costs through the savings gained from a lower interest rate. Market Dynamics: Keep an eye on the Lake Tahoe housing market. Local real estate trends can affect both the feasibility and advantages of refinancing your home loan. Keep in touch with your mortgage broker so you can always make the best financial decisions possible for you and your family. While 2024 might offer promising conditions for refinancing, it’s essential to consider your personal circumstances and the broader market context. A Look Ahead at 2024's Mortgages in Lake Tahoe Our recommendation on everything discussed in this article, especially for our Lake Tahoe region, is to be cautiously optimistic. The anticipated stability in mortgage rates should be a positive signal for both the California and Nevada sides of Lake Tahoe. Potential homebuyers might find more predictable and slightly more affordable borrowing conditions, opening up more desirable purchasing or selling windows for the first time in a few years. For homeowners thinking of refinancing, this also could be your year to lock in a better rate. If you're considering your mortgage options or have questions about financing or refinancing in the Lake Tahoe area, reach out to Maggie for any guidance or information you need — let's make your Tahoe home dreams a reality in 2024!