It’s a new year and if one of your financial goals is buying a home, the time to act may be sooner rather than later. After raising interest rates last December, the Federal Reserve is expected to implement three additional rate hikes in the coming months. At the same time, home values are projected to rise by 3.5 percent through the end of 2017, according to Zillow.
What does that mean for prospective buyers? Snagging your dream home may be more expensive. Having a great credit score can help keep the interest rate you pay on a mortgage low but that’s only one part of the equation. There are a number of things you need to keep in mind if you’ve got your sights set on becoming a homeowner this year.
1. Set your budget first
One of the worst mistakes prospective homebuyers make is jumping into the market without having a clear of idea of what they can actually afford. What inevitably happens is they find a home they love and end up taking on a bigger mortgage than they need, putting a major strain on their finances in the process.
Before you start browsing online listings or heading out to open houses, crunch the numbers to see what a reasonable mortgage payment really is. This is where it’s important to keep those interest rates in mind.
Let’s say you make $55,000 a year, you spend $250 a month on your other debt payments and you have $20,000 for a down payment. Assuming you qualify for a 30-year, fixed-rate loan with a 4% APR, you’d hypothetically be able to afford a home worth $202,000. If rates were to go up, however, and you now qualify for an APR of 4.25%, you’d be looking at a home worth $197,000 instead.