Buying a home during the summer can seem like added stress considering how busy the housing market can get. You are competing with first-time homebuyers looking for starter homes, families relocating who need to settle in before the next school year and investors who are seeking properties to flip or rent.
No matter your reason, start your home-buying journey with a plan to ensure you will be ready to tackle the season like a pro. In this blog, we will discuss ways that you can prepare for the summer home-buying season.
Prepare Your Finances
The first step to becoming a homeowner is to have a clear understanding of your finances to gauge if you are ready to buy a home. Start by listing all your monthly expenses, debt, income and savings. Each area of your finances can impact your ability to be approved for a mortgage, so you will need to work on areas that need improving.
Here are some tips on what you will need to identify:
- Monthly Expenses: Monthly expenses include all recurring expenses such as rent, utility bills, streaming services, phone bill, car payment, gas, food, medical, etc. You will need a clear understanding of where your income goes each month and how much is available for a mortgage payment, according to NerdWallet.com.
- Debt: Any outstanding debt, such as a credit card bill, a personal loan or an auto loan, is a liability because it is money owed that is tied to a monthly payment. If you have too much debt, you run the risk of not being approved for a mortgage. Lenders measure your debt-to-income ratio (DTI), a score based on comparing your income against all your debt. Paying down or paying off your existing loans improves your DTI and sets you up for a successful mortgage application, says NerdWallet.
- Income: Determining how much home you can afford requires an assessment of your current income. Creating a budget tailored to your salary ensures you can pay all of your monthly bills without going into debt. Utilizing a home affordability calculator can help. Simply input your salary, expenses and location of where you plan to purchase.
- Savings: Purchasing a home requires money for a down payment, closing costs, inspection fees and possibly other expenses. Know how much you will need upfront to complete the purchase. For example, a typical down payment on a home is 20% of the purchase price. There are down payment assistance programs that will allow you to provide as little as 3% for a down payment. You will need to check with lenders to find these types of mortgages. According to NerdWallet, it is a good idea to have more than enough saved up for your home purchase so that you can make any need fixes or upgrades to your new home. If you don’t end up needing it, you can use those savings as an emergency fund.
- Credit Score: Your credit score is an important part of your personal finances because it is used to determine your ability to repay loans. Obtain your credit report a few months before you apply for a mortgage so you can address any issues identified with your credit. Remember: you can get a free report at AnnualCreditReport.com.
A good credit score allows you to obtain a lower mortgage rate from lenders, which means saving money over the life of your home loan. There are ways you can increase your score, such as paying down debt, paying off debt and paying your bills on time. The goal is to create a good payment history.
Determine Your Location
Identifying where to purchase a home is an important step. Your location will depend on your priorities, such as a better commute, good schools, nearby entertainment, quiet neighborhood or some other factor. Do not forget to consider other aspects, such as property taxes, median home prices and access to available internet and cable services.
Taxes will typically vary by city and how much you pay will directly impact your monthly mortgage payment. Knowing all this allows you to make a sound buying decision that you will not regret later, explains Bankrate.com.
When to Buy
Determining the right time to buy will depend on your financial readiness. Key things to consider are interest rates, home prices and the housing inventory. There can be both advantages and disadvantages to buying in each season:
- Late Summer: Buying during late summer may be a good time because housing inventory and prices have a healthier balance, according to Forbes Advisor.com. This can be especially beneficial for first-time homebuyers because this balance could mean less competition from other buyers.
- Late Fall: Fall could be a good time to buy because buyers may have better negotiation power over sellers. This is because sellers could be looking to sell their homes before the winter months, which tend to be a slower time in the housing market. Home prices during the winter are less competitive and inventory can be higher.
- Winter: As mentioned, buying a home during the winter has its perks. There is less competition and sellers are more likely to negotiate to make a sale. A slower market can help you make a sound decision since the home buying process will be less rushed to make a deal with the seller.
- Spring: Finally, buying in the spring could be more challenging for some. This is the season in which there are more buyers in the market, creating a more competitive landscape that leads to the possibility of bidding wars.
Select the Right Mortgage
Once you have found a home and are ready to buy, it is time to find the right mortgage for you. There are a few different types of mortgages available, with fixed-rate mortgages and adjustable-rate mortgages (ARM) being the most common.
- Fixed-Rate Mortgages: Fixed-rate mortgages have a fixed interest rate for the life of the loan until it is either refinanced or paid off. This mortgage comes with terms of 10, 15, 20 and 30 years. This type of loan is preferable if you want a fixed monthly payment over the life of the loan, according to Nerdwallet.
- Adjustable-Rate Mortgages (ARM): An adjustable-rate mortgage starts with a variable interest rate that lasts for a short term and then it adjusts into a longer-term fixed rate afterward. An ARM provides more affordability for buyers because it usually comes with a lower introductory rate that provides buyers with lower monthly payments at the start. It is ideal for homebuyers who plan to refinance their mortgage or who plan to move and sell their homes within a few years.
Selecting a mortgage product that best fits your needs depends on your financial standing and your personal preferences. Keep in mind there are other lending options available, such as VA loans, the WISH program, and government-assisted loans. Check with different lenders to see what type of home loan programs they offer and select the mortgage that fits your needs and saves you money.
Ways TCU Can Help
Travis Credit Union’s expert mortgage loan consultants can find the right home loan for you. We will go over the home loan process and keep you informed every step of the way. As your trusted local lender, we will make the home-buying process easy. Visit our Mortgage Hub or fill out our contact form today to get started.
