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By many accounts, we’re in one of the strangest housing markets we’ve seen in a while: rising interest rates, inflation, and low inventory with somewhat stagnant home prices are making home buying plans unpredictable for many.
However, as the old adage goes, “Where’s a will, there’s a way!” If you’re in dire need of housing and can be somewhat flexible on your preferences, there’s definitely a way to buy a house in 2023. Keep reading for more tips, suggestions and ideas that will help you become a homeowner sooner than later.
Determine how buying a home fits in your life
Figuring out where you are in life will ultimately help you pin down your home-buying criteria. If this will be your forever home, then you’ll want it to be different from a temporary living arrangement or a “starter home” that you plan on upgrading from down the road.
Ask questions like:
- What are my must-haves?
- What am I flexible on?
- What is my short-, medium- and long-term vision for this home?
- What are my financial goals?
Once you get an idea of how a home purchase will fit into the bigger picture of your life, career and family goals, you should get an idea of the particulars like:
- Property type (i.e. single-fanily, multi-unit, condo, townhome, etc.).
Build your team
Now that you have a clearer picture of what your home could look like, it’s important to build your team. Here’s who you need and why:
Real estate agent
Technically, you could buy a home without a buyer’s agent, but there are many benefits to hiring a real estate professional. They can help you:
- Find and gain access to homes you are interested in.
- Submit an offer with the appropriate terms and contingencies that protect you and your money.
- Negotiate buying terms with a seller.
- Coordinate moving parts in the transaction that include interactions with the title company, attorney, lender and home inspector.
A buyer’s agent who’s knowledgeable about an area can also tell you what to look out for. For instance, they may know the type of building materials that are better suited for the region. They may also know what makes a house difficult to insure, along with common problems for homes built in a certain time period. This knowledge can be invaluable and help you get the best possible outcome.
If you are planning to finance the purchase of your home, you should use a reputable lender with a track record of closing on time. Your lender should be local to the area (which helps with the appraisal process) and responsive enough to keep your deal in play even when issues arise. Yes, the terms of your loan are important, but so is customer service and flexibility.
You can choose a lender for your preapproval process, but it’s wise to shop your rate once you go under contract. Getting 2-3 lenders to compete for your business could result in better loan terms.
This person or company will help you identify any issues with a property. These issues could be leveraged to garner discounts on the final price of the home. It can also alert you to anything you might need to fix once you move into your home.
Start the process
Like most things in life, buying a home starts with a first step.
Save for a down payment
The average down payment for a home can depend on the region and the purchase price of the home. Some loan products allow you to purchase a home with little-to-no down payment like FHA, VA or USDA loans. Conventional loans start at 3% down and typically go up to 20%.
In many states and local jurisdictions, there are downpayment assistance funds and special purchase programs that can help with specific circumstances such as a lower credit score, minimal down payment and those serving in certain occupations.
Fix your credit
In order to secure financing for a home, you’ll need to have a good credit score. Get copies of your credit reports from the three major credit bureaus: Experian, TransUnion, and Equifax. It’s important to know exactly where you stand with your credit.
If necessary, take steps to improve your scores, such as paying down debt, addressing errors and collection accounts. Talk with your lender about where to best apply your credit restoration efforts. They can often guide you on what exactly to address based on their underwriting requirements.
Once you have your credit in order, you’ll get pre-approved for a home loan. A mortgage pre-approval is an assessment of how much you can borrow and what kind of interest rate and mortgage terms you’re likely to get. This process can also help you narrow down your search and make sure any home you look at is within your budget.
Note, once you go under contract, the underwriting process will require you to answer more questions and provide more documentation so that you get a final approval for your loan. You can also shop your rates with other lenders during this time.
Start house hunting
Now that you know your budget and potential loan terms, it’s time to start looking for your house. Ask your realtor to set up alerts for properties that meet your search criteria. These alerts should be real-time and also trigger when there are price changes on your favorited or saved properties. Most online home marketplaces allow you to do this on your own as well.
As you identify properties you like, alert your agent, who can schedule a tour of the property. A good agent should be able to find you similar properties and make expert suggestions on areas as well.
Submit an offer and negotiate
Once you find a home you like, it’s time to make an offer. This involves negotiating the purchase price, closing costs, and other terms of the sale. If your offer is accepted, you will then need to submit a contract that outlines all of these details as well as an earnest money deposit (EMD) to secure the home until you close the sale.
Depending on the market, you may have to submit several offers. Be prepared to persevere and repeat the process several times in case your home search becomes difficult.
Consider creative home-buying strategies
As mentioned above, we’re still in a unique real estate market where home prices haven’t come down as much as expected; due to interest rates and somewhat stagnant wages, many people are now priced out of homeownership.
However, that doesn’t have to stop you from becoming a homeowner. There are plenty of advantages of property ownership that make it well worth it to start the journey sooner rather than later.
Here are some tips you should consider if your home search becomes challenging:
- Low-to-no-downpayment loans: FHA, VA, USDA and other loan programs can help you get into a property with a lower down payment.
- Consider a fixer-upper: Get a cheaper property and use a construction loan to renovate it.
- Buy a multi-family property: You can live in one unit and rent out the other to reduce your housing costs.
- Ask for seller concessions: Sellers can buy down your interest rate, help with closing costs or make repairs as part of the sale terms.
- Pay a larger down payment: This will reduce your monthly mortgage note.
- Buy in a low cost of living area (LCL): Your housing costs will be lower.
- Owner financing: Instead of getting a bank loan, you’ll pay the seller, over time, to buy the property.
- Use creative financing: Research assumable mortgages, subject to and wraps for more information.
What to know before buying: Key Considerations
It may seem like you can never do enough due diligence with a home purchase, but here are some things to consider in the process:
- Check the crime rates and local school ratings where you’re buying a home
- Factor in the total cost of home ownership that includes homeowners insurance, property taxes, maintenance and repairs
- Understand your closing costs which could include transfer tax, title insurance, processing fees, notary fees, real estate agent commission, loan origination fees, and more.
Is now a good time to buy a house?
Although the real estate market is always in flux, buyers have had a particularly hard time since the beginning of 2022.
That said, if you truly need a home and are ready to buy, your investment in a property will typically prove to be a wise move down the road. There are no guarantees, and buying a home is not risk-free, but as a rule of thumb, buying an appreciating asset, like a home, can contribute to building long-term wealth.
Is buying a house the right financial choice for you?
You should take stock of your financial situation to determine if owning a home is right for you. It takes the right combination of savings, income, debt-to-income (DTI) ratio and creditworthiness to be eligible for a bank loan and to maintain your home payments consistently.
If you are struggling financially and have plans to move or change jobs in the near future, these uncertainties could make homeownership out of reach. But even if your circumstances make this time less than ideal, if you still want to buy, consider what you can do to mitigate your risks.
For example, if you plan to move, you might be OK with selling your home or renting it out. Concerns about losing your job can be addressed by having extra savings as a cushion or getting a roommate to help share your housing costs. However, these should be backup plans, as the best approach is really to buy when your financial circumstances allow for homeownership.
There is no perfect time, but there is a right time
The 2023 real estate market may be unfamiliar territory for most, but that doesn’t mean you have to shy away from your homebuying plans. Unfortunately, no one can guarantee how things will pan out for this year, but financial wisdom typically says that homeownership is a great foundation to build wealth.
Do your research, build your team and be ready to trudge through the process with persistence. Before you know it, you could be living in your very own home.
Frequently asked questions (FAQs)
When should I hire a real estate agent?
Ideally, you’ll find an agent when you are ready to start your home search. They will typically require that you get preapproved with a lender right away, so you should be prepared to do so rather quickly.
How can I know how much house I can afford?
Your lender can help you come up with a number in the preapproval process. However, you should take stock of your personal financial situation to know how much you are comfortable paying for a home. Ideally, your housing costs should not exceed 20%-30% of your monthly take-home pay, though the bank may approve you for much more.
What is the average mortgage rate?
Mortgage rates vary based on the creditworthiness of the borrower and are often influenced by the prevailing federal funds rate. Your lender can analyze your personal financial situation to determine the interest rate on your home loan.
Can I buy a house with no money?
There are several federally-backed loan products, such as VA and USDA loans, that will finance up to 100% of a home purchase. You may also qualify for down payment assistance and other home buying programs to greatly reduce your out-of-pocket costs or eliminate them altogether.
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