New home sales went up even in the middle of the pandemic due to the government stimulus and low federal rates. Over a year after the pandemic started, home prices went up, but people were still looking for homes to buy as the Federal Reserve has kept interest rates low.
If you want to take advantage of these rates and buy a house, you should remember that home prices have gone up because of the high demand and low supply of houses. You should also make the necessary preparations before you finalize your decision to buy a house. Here are the things you need to do.
Be Firm in Your Decision
While many people dream of owning a house, some find it cheaper to rent one. This is particularly true if you take into account the expenses associated with homeownership. These expenses include property taxes, maintenance, and repairs. Renting a home also gives people the flexibility to move to another state if they get a lucrative job offer.
On the other hand, homeownership allows people to deduct a part of the property taxes and interest from their income taxes. It also allows them to avoid rising rental rates in different parts of the country. One major advantage these days is the low federal rates implemented following the start of the pandemic.
With these factors in mind, you should make sure you are firm in your decision when you buy a house. Buying a house is a major financial decision since it will tie up your funds for a long time. While you can refinance your loan, you still have to set aside a part of your earnings to pay off the loan.
Work on Getting a Better Credit Score
If you are firm on your decision to buy a house, you’ll have to make sure you have a good credit score. Your credit score determines the interest rate you’ll get when you take out a loan for a house. With a good credit score, reputable mortgage companies can offer lower interest rates on your loan. This increases your chance of paying off the loan earlier or having a better payment plan.
So, you should make sure to pay on time and avoid becoming a delinquent debtor. You should also keep your debt low since it can affect your available credit in the future. A good credit score tells lenders that you are not much of a financial risk if you take out a loan from them. You’ll also have a good rate if you’re planning to buy a car or get homeowners’ insurance in the future.
Work on Getting a Pre-approved Loan
Once your credit score is good, you should also get a pre-approved loan before going house hunting. Last year’s surge in home sales resulted in a shortage in the supply of houses in the United States. Due to this, home sellers are only dealing with serious buyers in the market. It takes a lot of effort for sellers to put homes on the market. When they take it off the market for someone who is not sure about buying it, they have to go through the process of listing it again.
To show these sellers that you are a serious buyer, you can show them that you have a pre-approved loan and you are now looking for a house to buy. Additionally, getting a pre-approved loan also shows you the price you can afford, which means you have to stay within the budget to avoid issues in the future.
Prepare the Down Payment and Closing Costs
You should also prepare for the down payment for the house. While you already have a pre-approved loan, you should have a separate fund for the down payment. The down payment is normally from 5 to 25 percent of the total price of the house.
Saving 25 percent of the total price can be challenging. In this situation, you may think about using a part of your retirement fund for this purpose. But you should make sure that you know the advantages and disadvantages of doing this. You will lose earnings if you take out money from the fund instead of keeping it in your investment portfolio. You do have an option of getting an FHA loan since the down payment is low. But you should check if you qualify for this type of loan.
Aside from the down payment, you should also prepare the closing costs, which you will incur once you finalize the purchase of the house.
Buying a house is a major decision, so you should make sure to prepare everything before you finalize the transaction.