As we hit the midyear mark, home inventory is down in 2017. Total housing inventory at the end of April was nine percent lower than in 2016 and has fallen year-over-year for 23 consecutive months.1 Stats like those are putting homebuyers in a crunch and making this summer a seller’s market. In this month’s Insights, we discuss how to get your home-buying ducks in a row so you are prepared to make a move when you come across a home that checks all the boxes.
Identify Your Needs vs. Wants
Determine the deal-breakers on your future home before embarking on the home-buying process. It’s easy to get wrapped up in the shiny features you wish for in your dream home, but the reality is that you might not get the full package in a low inventory market. Consider your requirements as the features that can’t be changed, such as a neighborhood with a solid school system, versus desires that you can change in the future, like granite countertops and hardwood floors. It’s easy to jump to conclusions in a tight market, but outlining your priorities will help you avoid panic throughout the process. Knowing what you are willing to compromise on and improve upon will help you make a quicker decision on what might not seem like a perfect fit at first glance.
Prepare Your Finances
It’s important to have your finances in order before embarking on the home-buying process. To prevent any hiccups during your mortgage qualification, make sure to check your credit, assess your savings and put off large purchases at least six months ahead of your search. You can check your credit through one of the main credit bureaus for free once a year. Some banks also offer free credit checks to customers. Take inventory of your savings to see how much home you can afford with your down payment. Buyers are typically expected to put down 20 percent to avoid the added monthly cost of mortgage insurance. Lastly, the credit report your lender pulls will reflect whether you applied for other loans over the past six months, so it can be helpful to avoid making any large purchases that require additional financing prior to taking out a mortgage.
Build a Team
A trustworthy real estate agent and a knowledgeable loan officer will make the home-buying process simpler, particularly in times of low inventory. Talk to others in your area who have recently completed the home-buying process to seek out industry experts. Ask questions early and often. An experienced real estate agent can explain what the home-buying process entails and spot good finds in a tight market. A skilled loan officer can help you understand the financial obligation of a mortgage, discuss your budget and walk you through all the necessary paperwork so you can line it up before the process kicks off. Lean on your team to learn what you can reasonably afford and determine the right match between available homes and mortgage programs.
Speed Up the Process
The competition is fierce in a low inventory market—as is evidenced by the drop in how long it takes for a home to sell. You can streamline the home-buying process by making sure you are preliminarily approved for a mortgage before venturing to open houses. Similar to a preapproval, a preliminary approval is not to be confused with a prequalification, which simply means your lender has informally reviewed some of your financial story. With a preliminary approval you’ll submit a mortgage application and provide documents that verify your financial profile. In turn, your lender will issue a letter that you can present to sellers to help you stand out among those browsing. If you happen to find the perfect fit, you can make an offer with your lender’s assessment that you’re preliminarily qualified to purchase.