What Homebuyers Can Do Now to Increase Their Chances of Success in the New Year

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It looks like it will be another competitive year for home buyers in 2022.

While the market is not expected to be as hectic as it was last summer, prices are expected to rise further. Zillow predicts home value growth of 11% in 2022, up from a forecast of 19.5% in 2021.

Plus, year-over-year inventories are consistently lower and concerns about rising mortgage rates fuel competition in the market, said Jessica Lautz, vice president of demographics and behavior at the National Association of Realtors.

“If you want to get in next year or before interest rates go up, get started now,” she said.

Certainly, mortgage rates are expected to increase over the next year.

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However, if you plan to buy in the next six to nine months, the increases shouldn’t be significant, said Kevin Parker, vice president of field mortgages at Navy Federal Credit Union.

“Rates are still historically extremely low and it’s still a great time to buy,” he said. “If anyone needs more time, I don’t think there will be a big difference in price.”

Here’s what you can do now to put yourself in the best position to find your new home in the New Year.

Pay off the debt

Lenders will look at your debt-to-income ratio, which is the amount of debt in relation to your income, when determining your loan. If you have debt, try to pay it off before you start looking for a home, Lautz suggested.

Consider using the year-end bonus money or cash gifts to pay it back. If you don’t have debt, put that money into savings to help with your down payment.

Check your credit

Your credit score is another important factor in getting a mortgage loan and the type of loan you will get. It also affects the interest rate you will receive and potentially how much you need for a down payment.

By checking your credit score in advance, you will know if you need to make any changes to try and increase that number.

Also get a copy of your credit report to check for errors or unpaid bills, which can also affect your credit score. Consumers can get their credit reports up to once a week for free from the country’s three largest credit reporting companies – Equifax, Experian, and TransUnion – until April 2022.

Get a real estate agent

Look for a real estate agent who is familiar with your market, suggests Zillow Senior Economist Jeff Tucker.

“They will be able to provide granular insight into the neighborhoods and cities you are looking in,” he said.

Contact a mortgage lender

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Reach out to a lender ASAP, at least to ask questions and find out what they need from you in order to pre-approve a mortgage, Parker said.

“We like that members start by understanding the process,” he said.

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 towards closing, as there are a fee – called closing costs – that are owed on top of your down payment.

You can also get pre-approved for a mortgage before you start looking for a home, as you’ll need it before you submit a contract for a home.

Explore the low down payment options

First-time homebuyers may not be aware that there are options for low down payments, Lautz said.

FHA loans, for example, offer down payments as low as 3.5%. Check the US Department of Housing and Urban Development website, HUD.gov, and other local resources to see what may be available to you.

“Doing your research ahead of time can help,” Lautz said.

Enter the market now

Many people suspend their home shopping during the holidays or simply squat in the winter. This means it can be a good opportunity to enter the market, Lautz said.

Buyers traditionally only return to the market in March, although the spring housing season has started earlier and earlier each year, she noted.

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