Think You’re Ready to Buy a House? Read This First

Think You’re Ready to Buy a House? Read This First

The housing market in some parts of the country has been intense the last few years and may stay that way for the foreseeable future. The available homes in some markets are usually selling for above market value or need significant and costly repair. While waiting for things to calm down, renting or seeking less conventional housing may be a better option. If you decide to dive into a hot real estate market, make sure you have your financial house in order, so you have the best chance of success.

Listen to this week’s episode of the rich & REGULAR podcast about alternatives to purchasing a home and consider the following if you decide to proceed with homeownership.

Buying vs. renting

Buying a home is supposed to be part of the American Dream, but that may soon be changing. As home prices continue to skyrocket and there is less available inventory, many people turn to alternative housing options like renting, living with family or considering a premanufactured home. Look at your priorities, your budget and your needs. To find a house within your budget, you may need to compromise on some of your dream features. 

Highly competitive market

The pandemic accelerated an already intense housing market in some areas, and that is only expected to continue. As many states face a housing boom across the nation, the available inventory is being snapped up quickly. In Denver, for example, one of the most competitive housing markets in the country, some houses are listed for hours before offers are made and accepted, instead of the usual days or weeks. 

If you’re looking to purchase your first home or to upgrade from a starter home, you may need to move quickly and decisively in a competitive market or, if possible, look in parts of the country that have less competition. You may not find your basic home requirements in one of the hot markets, but in a less competitive state or location, with reduced competition and prices closer to actual market value, you might be able to find your dream home. 

Stiff competition 

Not only are families competing with other conventional homebuyers for available homes, but there are also large investment firms and real estate brokers snapping up property in hot locations to offer short-term or traditional rentals. These companies often have the advantage because they have more resources available, such as offering cash, skipping inspections or opting out of other due diligence—something that an individual homebuyer probably shouldn’t consider.

If you decide you want to pursue a home purchase, you can do a few things to ensure you’re ready for the process. 

Work on your financial health

Making sure you have your finances in order and getting preapproved for a mortgage may be an excellent way to position yourself for purchasing a home. It’s essential to be prepared for the large initial outlays like a down payment or inspection fees, but it’s also vital to ensure that you’re financially ready for the monthly mortgage payment, property taxes and ongoing expenses. 

It can be tempting to do a lot of mental math to justify buying a home at the high end or even outside your budget. But remember that while the mortgage payment may be possible, it may not be comfortable—you still need to account for everything outside of your housing budget like food, utilities, child care, etc. and have some breathing room for the unexpected. Some things to have before proceeding are:

Have a healthy emergency fund. Having an emergency fund with three to six months’ worth of living expenses, in addition to your down payment, helps ensure that you are prepared for any unexpected costs or fees throughout the purchasing process while also having a cushion for anything else that comes up.

Keep your down payment liquid. If you’re expecting to purchase a home within the next six months to a year, consider keeping your funds in a high-yield savings account. If your timeline is more prolonged, consider a CD or other after-tax investment option to help your money grow as much as possible while you wait. 

Having a liquid down payment can help you move quickly when you find the right property and ensure that your earnest money is available. Earnest money is a deposit you make to the seller of usually 1–2% of the purchase price to show your good faith in purchasing the property. It can be added to your down payment or closing costs but usually needs to be presented within a day or two of going under contract, so it’s good to have funds readily available. 

Check your credit. You know that lenders will pull your credit to check for payment history, credit utilization and your debt-to-income ratio, among other things, so make sure that you know what they will find. Until April 20, 2022, you can check your credit report with each of the three major bureaus (Experian, Equifax and Transunion) once a week. After that, you’ll be able to check each report once a year, so stagger them accordingly. 

First time homebuyers

If you are a first-time homebuyer or qualify under the US Department of Housing and Urban Development (HUD) guidelines, there may be state and federal programs that can help you secure a loan or offer tax breaks. Some states like Illinois, Ohio and Washington provide closing cost or down payment assistance. Do a web search for your state and ‘first time homebuyer assistance’ to see what options may be available in your area. 

Consider your options

Buying a home is a huge undertaking, and not something to do without preparation. Whether it’s your first home purchase or your family is upgrading, make sure that you are financially prepared and have done your research to make the process go as smoothly as possible. 

Articles

Julien and Kiersten Saunders, Money Editors for SUCCESS magazine, are the couple behind the award-winning blog and forthcoming book, rich & REGULAR. They are producers and hosts of the original series, Money on the Table, which blends their passion for food with thoughtful conversations about money

Articles

Julien and Kiersten Saunders, Money Editors for SUCCESS magazine, are the couple behind the award-winning blog and forthcoming book, rich & REGULAR. They are producers and hosts of the original series, Money on the Table, which blends their passion for food with thoughtful conversations about money

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