Welcome to 2024! Is this the year you become a homeowner? Hey, me too! (I hope.) It’s not an ideal market for home buyers, thanks to a fine combination of high mortgage rates and a lower supply of homes for sale.
The average rate for a 30-year fixed mortgage loan is 6.61% as of this writing, per Freddie Mac, which has the potential to make a home purchase a whole lot more expensive than it would have been even just two years ago, when that same loan had an average rate of 3.22%. But if you’re ready to buy anyway, here are a few ways to cope and succeed in your quest to become a homeowner.
1. Shine up your credit
Before you start talking to mortgage lenders and giving them access to your finances, it’s a smart idea to take a good long look at them yourself. In particular, your credit profile is of vital importance in determining the mortgage rates you’ll be offered — the higher your credit score, the better your chance to save money on interest.
Have a gander at your credit report to check for errors that might be dragging your score down. Pay down some existing debt, if you can. And avoid making any changes to your finances ahead of or during the mortgage loan process — keep old accounts current, avoid opening new ones, and wait on big purchases until after your loan has closed.
2. Get pre-approved for a mortgage
Feeling good about your credit score? Excellent! Time to start contacting mortgage lenders to see about getting pre-approved for a mortgage loan. This is an important move for two reasons. First, you’ll find out what mortgage rate you’ll be looking at, as well as how much a lender will let you borrow. Second, a buyer with a pre-approval letter in hand could be worth two unqualified lookie-loos in the bush for a home seller. Basically, a seller will likely be more inclined to accept an offer from you, who’s had their finances vetted by a lender, than an offer from someone who may not actually be able to get a mortgage loan.
3. Set a strict budget
Now that you’ve gotten your pre-approval, you might be a little shocked by how much the lender thinks you can afford to spend on a home. The good news is that you don’t have to spend that much on a house — in fact, it’s probably a terrible idea to trust a lender’s assessment of your real financial life.
Sure, it looked at your pay stubs, bank statements, and maybe even your tax returns — but it doesn’t know that you love to travel, and that overcommitting to an expensive house payment will make it impossible to continue affording that. So run your own numbers, decide how much you want to spend on predictable monthly costs (ideally less than 30% of your take-home pay), and play around with a mortgage calculator to see how much house you can afford based on your actual life and other goals. Then stick to that number when you look at homes.
4. Find a great agent
A real estate agent can be your best friend, and in a difficult market, they become even more important. A good one will watch listings for you, schedule showings, and remain ready to craft the perfect offer when you find a house worth bidding on. And if you’re worried about how you’ll pay a real estate agent, don’t be — buyer’s agents are paid by the seller of the home you end up buying. Ask the right questions to find the best agent for you.
5. Compromise, compromise, compromise
I probably don’t need to tell you this if you’re seriously considering buying despite the less-than-ideal market conditions, but I will anyway. You’re probably not going to find your end-all, be-all dream house in this market. The market is still tipped in favor of sellers, who can command high prices for their homes thanks to a lack of inventory. So now is not the time to be too picky.
This isn’t to say you should throw your entire wishlist in the trash and settle for a house you don’t actually like. But you may want to pare down your list of “must-haves” to the bare essentials — for me, this includes the size of my home, covered parking for my car, and being in a neighborhood that is pedestrian-friendly — and be willing to bend on other qualities. I’d also love to buy a home with central air conditioning so I don’t have to add it myself later, but at my price point (and for an older home), that might be out of reach for me.
Your needs and wants are personal, and you still might find a lot of what’s on your list. But don’t be surprised if your dream house is either prohibitively expensive or nonexistent right now.
It’s a hard market to be a home buyer in, there’s no way around it. Thankfully, by focusing on the above moves, you can give yourself the best chance of becoming a homeowner in 2024.
