Resolutions That Can Help You Buy a Home in the New Year
The beginning of the new year is here, and it’s always an exciting time. While many people make traditional New Year’s resolutions like exercising, losing weight, and reading more, many are reaching for new heights and setting a goal to become a homeowner in 2023. What may seem like a lofty goal right now can become an exciting reality if you don’t let another day go by without taking a step toward your home-buying dream. The first critical step is to start planning! Making and keeping the following resolutions will help set you up for success.
Check Your Credit
One of the first things a mortgage lender will do is check your credit to determine your debt-to-income ratio. This determines how much of a mortgage loan the lender will approve. If your credit score is 690 or higher, that’s considered “good”. However, if your credit score is lower, start working on it now before you start the pre-qualification process. Start saving and taking steps to correct your credit and you could be ready to close on a house in just a few months.
As a rule of thumb, it’s a good plan to keep or pay down credit balances to under at least 25% of available credit. Credit bureaus submit a new credit report each month, which means that prospective homebuyers can see a boost in their credit score every 30 days so long as they continue to exercise good credit habits.
Gather Your Resources
Organize all of the paperwork you’ll need for your approval – income tax statements, pay stubs, W2s, proof of income if you are self-employed, and bank and savings records. Have everything ready so you can hit the ground running when it’s time to seek a loan.
Also, it’s really important to find a real estate agent who is compatible with your style and preferences. I’m here to help you through the entire process.
Meeting with a mortgage lender now can save you time later. Securing pre-approval on a mortgage will usually lock in an interest rate for 90 days and allow you to focus on homes that are in your price range. Pre-approval also shows sellers that you are a serious buyer. Once homebuyers have a feel for how much they are able to afford each month, they can work with a mortgage advisor to get pre-qualified for a loan that meets their needs.
There are other variables that can determine how big of a loan makes sense for your situation, including the type of loan (FHA, VA, or Conventional, for example) or the current interest rates. Many times, people will qualify for more than they can afford, so it’s important to look at your finances and determine your comfort level. A good rule of thumb is that housing costs shouldn’t exceed more than one-third of a homebuyer’s monthly income.
It’s never too early to start house shopping. It’s really challenging to make a decision about a house if you don’t have a point of reference. Remember that inventory during the winter months is usually smaller, but there are also fewer buyers in the cold months. Once you have an idea of your ideal price range and have found an agent to work with, begin looking at different properties online and in person, and even attend some open houses.
Nothing prevents you from driving through neighborhoods to see which areas you like and the price points. When choosing the right neighborhood, consider three important things: live, work, play. How close are grocery stores and a gym that you like, your workplace, and other stops you make as a regular part of your day to day life? A Realtor can tell you about traffic patterns, community events, or even such things as noise from overhead plane traffic.
Avoid Large Purchases
As you pay off any holiday debt you may have accumulated, you also want to avoid making any large purchases in the coming months. As tempting as it may be to take advantage of after-Christmas and Super Bowl sales, keep your credit card in your wallet while you plan for that new home.
Perhaps one of your other New Year’s resolutions is to save more in 2023? Did you get any cash gifts for Christmas or a year-end bonus at work? Sock them away. Do you expect a tax refund for 2022? If so, submit your taxes as quickly as possible. Have you consulted a financial and a tax advisor? Both of these professionals are there to help plan at this important time.
In addition to the down payment, homebuyers may need to pay thousands of dollars in closing costs before the deal is finalized. If currently renting, there are potential lease-break issues, the cost to hire movers, or the need for temporary housing while waiting to move into your new home. There’s also the potential for an HOA fee, private mortgage insurance (PMA – usually required if your down payment is less than 20%), homeowners’ insurance, and property taxes to consider. All of these factors added to your loan cost helps to narrow down your options.
The reality is that sometimes people also need to adjust their expectations – or their budget. Simply put, the more money buyers have in their pockets when making an offer, the better off they’ll be. A buyer’s mortgage advisor or real estate agent can help buyers create a realistic savings goal.
Eliminate Unnecessary Spending
This goes hand-in-hand with avoiding large purchases. Scrutinize your budget for any unnecessary spending, such as movies or restaurant dinners. If you’ve always taken a trip to a warm weather destination during the depths of January, perhaps postpone that trip to next year, after you’ve secured your new house.
A hidden cost in many people’s budgets are monthly subscription fees. The numerous streaming platforms available to us today are especially pricey individually, but collectively they can really add up. Also, look at your mobile phone plan. Are you paying for a package of minutes you don’t always use? Maybe you can renegotiate a better plan or find a more affordable provider; likewise for cable TV and internet services.
Avoid Switching Jobs
Many people make job resolutions each year and seek out new opportunities or careers. If you’re serious about finding a house in the first quarter of 2023, put those career aspirations on hold for a bit. Starting a new job just as you’re applying for a mortgage loan will make the lending process more challenging and time consuming, because lenders are looking for financial security and a new job is not perceived to be as stable as one where you’ve worked for a few years or more.
As you can see, there’s real value to having a plan and today is the best time to start. I’m here to help you along this exciting journey. Reach out to me if you have any questions.