6 Things to Do Now If You Want to Buy a Home in 2023

An image of a person holding keys in front of a house is used to illustrate an article about homebuying tips. Credit: Getty Images
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Buying a home in 2022 was a game of wait-and-see, as prospective buyers idled on the sidelines hoping for the costs of homeownership to drop. Mortgage rates more than doubled over the course of a year while home prices increased by record numbers. 

The next year shows promise as experts predict mortgage rates, home prices and homebuyer competition to cool a bit. But there are a few steps you should take to prepare yourself. If your New Year’s resolution is to become a homeowner in 2023, here’s how to make it happen. 

Put Your Savings in a High-Yield Account

If you’re planning to buy a home within the next year or so, “you’ll want to keep your savings relatively liquid because you want your money to be there when you need it,” says Danielle Hale, the chief economist at Realtor.com. Consider putting the money for your down payment, closing costs, and cash reserves in a high-yield account you can tap into. For instance, interest rates on certificates of deposit (CD) and savings accounts have been rising, so you may get a strong return on your money. 

You might also want to pad your savings in case a recession arrives in 2023 or you’re concerned about unemployment. Some personal finance experts recommend stashing three to six months’ worth of expenses in your emergency fund. Those expenses include your upcoming mortgage payment but also necessities such as groceries, utilities, your phone bill, transportation costs, and anything else you would need to stay financially afloat.  

Review Your Credit

Mortgage rates hovered just under 7% at the end of 2022, but you may qualify for a money-saving lower rate if you have strong credit. Get a feel for where you stand before contacting a bank, because “you don’t want any surprises when you are ready to talk to a lender,” says AJ Barkley, head of neighborhood and community lending at Bank of America. 

Head to AnnualCreditReport.com, where you can pull your credit reports for free up to once a week through 2023. Errors (like incorrect account balances) and identity theft (like accounts fraudulently opened in your name) can bring down your credit score, so you should dispute these as soon as possible. 

You may also be able to check your free credit score if your bank or credit card offers this service. Mortgage programs typically set a minimum credit score to qualify for a loan. If yours is on the low side, take steps to improve your credit before seeking a preapproval. 

Set Your Budget

Getting preapproved can help you understand how much you can borrow. During the process, a lender pulls your credit and checks your income, debts and assets. If everything checks out, the lender gives you a letter that says how much you can borrow and your estimated interest rate. However, you can borrow less than the amount you qualify for, Barkley says, based on what you’re comfortable with.

“A general rule of thumb is to multiply your monthly income before taxes by 28%,” she says. “The resulting dollar amount is typically how much a manageable monthly payment might be, including taxes, (homeowners) insurance and private mortgage insurance.”

So if you earn $6,000 a month before taxes, for instance, then an affordable monthly housing payment is around $1,700. You can even aim for a lower mortgage payment if you have other high-dollar expenses such as child care, Hale says.

Also consider the total costs of homeownership, says Lisa Frison, head of financial inclusion and racial equity at Citi. “These costs may include homeowners association dues, lawn maintenance, routine repairs and renovations—these things can add up and reduce your monthly cash flow,” Frison says. “Taking all costs into account can help you ensure that you can not only get into the home, but stay in it.”

Seek Down Payment or Closing Cost Assistance

A home’s purchase price influences the upfront costs you pay on a home loan, with down payments starting around 3% and closing costs ranging from 2% to 5% of the home’s price. And because home prices across the U.S. increased throughout 2022, the amount of cash you need upfront has also increased. 

But you may qualify for a program that offers down payment or closing cost assistance, which often comes in the form of a grant or affordable loan. These programs are run by lenders, federal and state housing agencies, and local housing authorities. Each program has different offerings and requirements, so research what’s offered in your area and which lenders accept this type of financial assistance.  

Monitor Trends in Your Market

Because every housing market is different, it’s a good idea to talk with a real estate agent when shopping for a home. They can “give you the details on what’s been common in your housing market,” Hale says. Ask them about:

  • Home prices: As mortgage rates pick up, buyers’ borrowing power drops, and sellers have to deal with lower demand. As a result, sellers in some areas are lowering their listing prices or accepting lower bids.  
  • Inventory: Realtor.com predicts inventory to rise by 20% overall in 2023, although housing availability will still be tight compared to pre-pandemic levels. If there are more homes for sale in your area, it might be easier to find a property in your budget. 
  • Negotiation power: Because home prices and inventory are moderating, “you’re more likely to find more negotiating room in 2023,” Hale says. Additionally, “sellers are more likely to accept contingencies like home inspections, appraisals and financing.” 

Lock a Good Interest Rate

The 30-year fixed mortgage rate averaged around 3% at the beginning of 2022 and shot up to more than 6% by the end of the year. While it’s impossible to know exactly how mortgage rates will behave in 2023, some experts predict moderation. For instance, Fannie Mae expects mortgage rates to drop to 6.6% by the first quarter of 2023 and drift down to 6.2% by the end of the year. 

Other analysts expect rates to move in the opposite direction initially. “We think mortgage rates are probably going to climb still into the first half of 2023,” Hale says. “At that point, I think we’ll be closer to the end of the (Federal Reserve’s) tightening cycle and we’ll see mortgage rates come back down for good.”

Higher interest rates reduce your purchasing power. So when you’re figuring out which homes you can afford, start by using a mortgage calculator. “Set a budget using today’s rates, but also consider what would happen if rates were to climb another quarter point or half point,” Hale says. 
Interest rates vary widely with each lender, so consider comparing quotes from at least three financial institutions. You can limit your exposure to rising interest rates by locking in the rate. Some lenders even allow you to extend the lock period or adjust the rate down if market rates fall during the lock period—though typically for a fee.