Fall could relieve house hunters of more than the heat | Smart change: personal finance


Leslie Cook

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After more than a year of scorching home sales, the real estate market is finally showing signs of slowing. The end of summer brought more new inventory, flattening list prices and less bidding wars, all pointing to a less hectic fall buying season.

In general, home sales slow down and prices fall in the fall. That didn’t happen in 2020, but there are signs of a return to more typical seasonality this year.

“If you were shopping earlier this year and were fed up with the competitiveness, maybe now is the time to start looking again,” says Ali Wolfe, chief economist at home construction consultancy Zonda.

Prices have calmed down a bit. The national median list price fell to $ 380,000 in August, from a peak of $ 385,000 in July. Although asking prices were still 8.6% higher than a year ago, the year-over-year growth rate slowed from 10.3% the month before.

More tellingly, 17.3% of all listed homes saw their prices drop last month, a signal that sellers need to adjust their expectations to attract buyers. In February, only 9% of listed homes saw their prices drop, the lowest share this year.

This helped a total of 432,000 new listings hit the market in August, a 4.3% increase from August 2020, according to Realtor.com. In addition, many homes that become available for sale are smaller and more affordable. departure houses, offering more options to first-time home buyers.

While this is good news for buyers, it is still a seller’s market. The total number of active listings at the end of August was only 650,000 units. There is still a long way to go before the market fully returns to “normal”, Wolf notes.

The key is to be able to take advantage of an opportunity when it presents itself this fall. Here’s how.

The first step towards a new home is to work and figure out how much you can afford.

Mortgage experts are available to help you start your home buying journey with solid advice and invaluable information. To learn more, click on your state today.

Check your credit report for errors

If you’re buying a home, you probably need a mortgage, which means lenders will check your credit report and score.

Making sure there are no errors on your credit report that could affect your chances of qualifying is an important first step. “In most cases it’s something small, but sometimes it’s huge,” says Kroger Menzer, real estate agent at Coldwell Banker at Southern Jordan, Utah, who worked for a mortgage lender.

Menzer knows this from experience, as he found out that he was listed as dead on his credit report. “It turns out that no one is going to lend you money when you’re dead,” he says.

You can request a free copy of your credit report from one of the three major reporting bureaus – Experian, Transunion, and Equifax – annualcreditreport.com. You can access one free report each week until April 2022. (Normally you are entitled to one free report per office per year.)

If your credit score is low for legitimate reasons, such as high balances on your credit cards or because you don’t have a long credit history, you can take steps to improve your score. Paying off unpaid debts, keeping your credit usage low, and making payments on time can increase your score. If you have serious credit problems, such as a history of late payments or default on payments, a credit repair company you may be able to help you increase your score.

Most mortgage lenders will require a credit score of at least 620. However, to get the best mortgage rates you will want a credit score of 740 or higher. The average credit score for purchase loans created in August was 730, according to the mortgage data company Black Knight.

Establish a budget

How many houses can you afford? There are several ways to understand it.

In general, mortgage lenders will use the 28/36 rule. This rule of thumb says that you shouldn’t spend more than 28% of your gross monthly income on housing costs and a maximum of 36% of your gross income on paying off your debts, including the mortgage. Some lenders, however, will allow up to a maximum of 43% of gross income for debts.

Of course, you don’t need to borrow as much as you qualify. Once you have a target monthly payment, you can use a mortgage calculator to get an idea of ​​the importance of a mortgage that fits your budget.

You will also need to know how much you can put for a down payment. In order to avoid paying for mortgage insurance (which protects the lender, not you), you will typically need to pay 20%. However, most borrowers deposit less and FHA loans only require 3.5% off in most cases, while USDA and VA loans (for active duty military and qualifying veterans) can be purchased without cash.

Shop for a mortgage lender and get pre-approved

Mortgage rates are close to their historic lows. Borrowers with excellent credit can currently get a 30-year fixed rate loan with an average rate of 2.88%. The rate you qualify for will depend on your credit score, the amount of your loan, and the amount of down payment you make.

Don’t assume that the interest rate offered by one lender will be the same as what you get from all other lenders. Qualifying criteria vary, so you won’t know what the best rate you can get until you check with different lenders.

Pull the rates from at least three different lenders. Finding the best rate could save you a lot of money over the life of the loan. Borrowers who get an additional quote save an average of $ 1,500 over the life of the mortgage, but by getting five bids you save on average Freddie mac.

Once you find the right lender, get a mortgage pre-approval letter. This will make the mortgage application process easier and will also signal home sellers that you are a serious buyer and that you can probably close in a timely manner.

Getting pre-approved for a mortgage helps you get one step closer to your dream home.

Find out how much home you can borrow before you start looking. Click below to speak with a mortgage expert.

Be realistic about the future value of your home

Don’t assume that home values ​​will automatically continue to rise.

Buying a home is a long term investment. Traditionally, homes tend to appreciate around 3.5% per year. While the COVID-19 pandemic has resulted in double-digit growth in house prices over the past year, price growth is expected to stabilize in the future.

Home prices are influenced by a variety of factors, including the economy. Look no further than the Great Recession to see how a booming real estate market turned into a stock market crash. The house was worth 18% in December 2008 alone, according to Case-Shiller. Values ​​in some cities have fallen by as much as 30%.

Natural disasters that cause significant damage, such as hurricanes or wildfires that ravaged the west coast, can also influence home values. Areas at high risk of natural disasters see price growth 5% lower than houses in low-risk areas, according to Realtor.com.

“Buy something you like, buy something you feel good about, buy something you feel good about,” Menzer says.

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