Beatrice is the Consumer Trends Expert for Opendoor.
The real estate market is hot, and experts predict that it won’t be cooling off anytime soon. The good news is that low mortgage rates have made it possible for many people to buy their first home earlier than planned. Renters everywhere, especially the 12 million Americans spending more than half of their income on rent, would be well served to at least consider whether now is the right time to buy a home.
So what about you? Are you ready to stop renting and start building equity for your financial future? Maybe you’d like to buy a home but feel unsure about navigating a competitive market. If so, you’re not alone. While you can’t control the market, there are some things you can do to be prepared, house hunt like a pro and stand out during your search.
Get your financial documents in order.
Understanding your financial situation and what you can afford is the first step to owning a home. Check your credit score, tally up your debts and review your savings so you’ll be prepared to work with a lender. Here are a few important things to note:
• It’s smart to have at least three months of living expenses in savings, along with a down payment and money to cover closing costs. Contrary to popular belief, you don’t need to put down 20% to buy a home; depending on the type of mortgage loan you get, you might be able to put down as little as 3.5%.
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• It depends on the lender and the loan type, but to qualify for a mortgage, you’ll generally need to demonstrate good credit, a history of making payments on time and a debt-to-income (DTI) ratio that’s less than 40%. It’s a good rule of thumb to limit your housing expenses to about 30% of your monthly gross income.
• While reviewing your financial situation, gather copies of documents for a lender so you can get preapproved. They’ll ask for proof of employment and your income (W-2s, 1099s), proof of assets, copies of monthly bank statements and your last two years of tax returns.
Work with a lender early on.
In addition to prequalifying or preapproving for a loan, before you begin your home search, lenders can help in a number of important ways. They can often provide advice about improving your credit score and explain how different scenarios — such as taxes, the size of a down payment or private mortgage insurance (PMI) — can affect how much home you can afford.
If you’ve grown accustomed to paying rent in an expensive area, you might be able to afford more than you think. In addition to sharing incentives for first-time homebuyers, a lender can also help you establish which mortgage is right for you and explain how different payment terms align with your payoff plans.
Know what you want and need.
Once you’ve worked with your lender to establish a price range based on your salary, down payment and any additional factors, you’ll be set to start searching for homes within your budget.
At this stage of the process, it’s a good idea to be prepared with a list of your wants and needs, along with any areas you may be able to compromise when looking for a home. Consider location, home type, size, home features and amenities. If you’re working with an agent, they’ll set up a search so you can see new homes that meet your criteria as they’re listed.
Tour homes right away.
Homes are moving quickly in the current market. If you see a home you’re interested in, set up a virtual or in-person self-tour right away.
While touring the home, think about things you can’t change, like the location, home style and layout. Don’t let features like bold colors or outdated fixtures turn you away; there are a number of ways to affordably update a home, and paint is an easy fix. As a first-time homebuyer, it’s smart to look for a property you can not just enjoy but also add value to.
Make a strong offer.
In a competitive market, I recommend moving as quickly as possible when you find a home you love. Ask your agent if there’s an offer due date. If the sellers are waiting to review offers, you’ll have a bit more time to put together a strong offer.
When crafting your offer, look to see if there are any special terms the seller is hoping for. Would they like to close quickly? If so, work with your mortgage lender to see if they can help you work faster for a shorter closing. Do they need more time to move? If so, do your best to accommodate a longer time frame.
Consider other ways you can be flexible, too. Each seller is different, and you may be able to appeal to a seller by honoring their requests. For example, if they’d like to take certain appliances, such as the washer and dryer, not requesting them in your offer may help. Avoid requesting that the seller cover small charges, like a home warranty, and be prepared to pay for standard fees. Negotiating otherwise means the seller will receive less money from their home sale, which may result in having your offer rejected.
Close on your dream home.
Once your offer is accepted, you’ll be well on your way to owning your first home and ready to tackle final steps. This includes making an initial deposit, scheduling a home inspection and completing your final walkthrough before closing. It usually takes between 30 and 45 days to fully close on a home.
Buying your first home is a major milestone worth celebrating. Transitioning from renting a home to owning your own can help you build equity and establish a strong foundation for your financial future.