If you’re thinking about giving up renting and buying a home this summer, you’re not alone. Summer is when the home buying season usually shifts into high gear.
Warm weather generally attracts more buyers and sellers and homes sell out quickly. This year, stocks are particularly low and buyers are finding it increasingly difficult to find a home in their price range.
May statistics from the East Central Iowa Association of Realtors show that the average number of days on the market for homes in Dubuque MLS is 26 days. For comparison purposes, the average number of days in the market was 59 days in February. The reduced inventory led to bidding wars between buyers and homes selling above the list price.
Despite this, the rates are at their lowest, which makes buying a home quite affordable. If you are ready to buy, great. But if you’re just soaking your toe in the water, read on.
This column will guide you to make sure you have all of your ducks in a row and be ready to make a solid bid when you find your dream home.
Know (and manage) your DTI
Your debt-to-income ratio, often referred to as the acronym DTI, reflects the relationship between how much you owe and how much you earn.
In a perfect world, potential buyers should have as little debt as possible while earning a regular and stable income. This will allow you to pay off a mortgage on top of any other debt you may have.
Having a higher DTI than you want doesn’t prevent you from getting a mortgage, but the terms around that mortgage – most importantly the type of mortgage – might be different than if your DTI were lower.
When applying for a mortgage, your loan officer will take all of your monthly debt – like student loans, car loans, and current or recurring credit card balances – and divide them by your gross monthly income. Ideally, he or she will want to see a DTI ratio of 45% or less. Some programs have higher DTI limits and others have lower limits. It all depends on the program and the lender, which is why it’s important to shop around for multiple lenders when pre-approving a home.
Credit reports and credit scores
Like it or not, someone is keeping track of your ability to manage credit. Let’s fix this: Three companies track your credit: TransUnion, Equifax, and Experian.
At the request of lenders (and sometimes borrowers), these companies put together credit reports that describe any loans you’ve ever taken, your payment history, and the amount of credit you’ve been approved for, even if you haven’t. not use it. Because a credit report sets out your creditworthiness and the likelihood of you paying your mortgage on time, lenders rely on it – and a credit score – to decide whether or not to approve your loan application.
Just like a credit report, your credit score plays an important role in your ability to get a mortgage. By simply looking at your credit score, banks and mortgage companies make assumptions about the risk of loaning you money. Scores can range from 300 to 850 points, with âgood scoresâ somewhere in the middle.
Some lenders report that a score of 600 is average. Others say you have to be at 700 to be considered good. Even if your credit score is in the low to medium range, there are loan products to consider.
Get pre-approved (before attending open days)
Unless you’re considering making a cash offer, finding a home without first getting approved for a mortgage is just snooping around other people’s homes. Pre-approvals show you are serious.
A pre-approval is a written estimate of how much home you can afford and how much debt you can owe. Pre-approvals are much stronger than a pre-qualification letter, which is really just an estimate of what you can afford based on what you put in your application.
Once a lender has determined the amount they are willing to lend you and verified your income and asset documents, you will receive a pre-approval letter indicating the amount. Some real estate agents won’t even agree to work with a client unless they’ve been pre-approved.
Not only does a pre-approval save you time, it’s also a great bargaining chip when buying in a competitive market.
When the weather gets warmer, people start looking for a home. Of course, it differs depending on where you are looking to live, but spring tends to be busy in general. The high volume of home purchases usually continues into the summer as some people want to move into a new home before starting the school year.
While the competition can be fierce and stocks a bit tighter, don’t be afraid to jump in if you find the right home at a reasonable price, especially if you’ve been pre-approved.
If you can organize yourself during the summer, work with a good real estate agent to identify communities that interest you and keep in touch with your loan officer. If you can’t find a home right away, that’s okay. It might be a good idea to calm down until early fall. This is when the number of properties available on the market is relatively high – compared to other times of the year – and sellers may be more eager to close a deal before the approach of. Winter.
Of course, that might not be true for you. The factors influencing property prices can be extremely local. You might find more competition for a specific property while others nearby remain unsold for even longer.
Remember to keep in touch with your lender to determine how much home you can afford, then ask your real estate agent to show you only the homes that make sense to you and your budget. The last thing you want to do is fall in love with a house you can’t afford or can get approved for.
Buying a home doesn’t happen overnight. Allow time for your due diligence up front and there will be fewer issues along the way. Start early and you could be enjoying your new home on a long day.