3. Work on saving your down payment
For a conventional loan, the standard down payment has traditionally been 20% but it’s possible to buy a home with less. With FHA loans, for example, the down payment is set at 3.5% for creditworthy borrowers. A USDA loan, on the other hand, requires no down payment if you meet certain income and credit guidelines.
If you want to buy a home sooner rather than later, that may mean offering up a smaller down payment. While that’s not a barrier to loan approval, there is a financial catch. If you’re putting less than 20% down, private mortgage insurance (PMI) will be tacked on to your loan. This is the lender’s insurance policy against default and it can add to the cost of your monthly payments, which is something you’d need to factor into your home-buying budget.
4. Shop around for the best rates
According to the Consumer Financial Protection Bureau, nearly half of homebuyers don’t take the time to scout out the best deal for a mortgage. That’s a mistake you simply can’t afford to make. With rates rising, it’s more important than ever to look at what different lenders are offering to see who’s got the best terms.
With a $200,000 loan, for example, an interest rate of 4 percent would mean paying nearly $143,000 in interest, assuming a 30-year term. Bump the rate up to 4.5% and the interest total climbs to more than $163,000. If you’re not putting in the effort to find the lowest rate you can qualify for, you could end up paying a lot more for a home than you need to.
5. Get pre-approved if possible
While you’re comparing rates, it’s to your advantage to get pre-approved for a loan if you can. A pre-approval doesn’t mean that your mortgage is set in stone but it shows sellers that you’re coming to the table ready to buy. If you get locked into a bidding war, your pre-approval letter could be your ace in the hole if the other buyer’s financing is called into question.
6. Be prepared for competition
After years of steering clear of the housing market, the tide is set to turn in 2017 as more millennials venture into home-buying. Housing inventory has been on a downward slide since September 2016, meaning there are fewer homes for sale. With more buyers flooding the market and supply falling below demand, you’ll need to stay on your toes if you want to land a home.
That doesn’t mean you should rush into buying but you should be planning out your strategy well in advance. Give yourself time to clean up your credit reports and get your down payment together. In the meantime, you can be taking the temperature of the market in your area to gauge how likely you are to be competing with other buyers and how home prices are trending. The more research you do beforehand, the smoother your home buying experience is likely to be.
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