Lower interest rates spurred the demand for homes when the pandemic started. The situation allowed many Americans to buy their first homes. But low housing supply caused home prices to go up, which tempered the demand for houses in the market.
Despite the lull in the home sales market, people are still hoping to buy a home in the future. If you are planning to buy a house at this time, you should take several factors into account. You should base your final decision in purchasing a home on these factors. Here are the factors that you should before you finalize your decision.
Make Sure Your Income Is Stable
You should make sure you have a stable source of income. This is necessary to get a loan for the house you plan to buy. The pandemic affected the income of many people as it caused many businesses to close. If you are among those laid-off due to the pandemic, you should consider postponing your plans to buy a house until your source of income stabilizes.
Financial institutions look at the employment history of their clients. They want to make sure that their income is enough to cover mortgage expenses. Similarly, self-employed individuals need to provide proof that they are making enough to cover the mortgage. The
Since financial institutions cannot forecast your income, they use proof of a stable income source before lending you money.
Check Your Credit Score
You should also make sure you have a good credit score. A good credit score increases your chances of getting a loan. It also allows you to get a lower interest rate when you borrow to buy a house. So, you should get your credit report before you start looking for a home to buy. Three leading credit card agencies can provide a credit report for free.
You should check for inaccuracies in your credit report since financial institutions have become cautious when lending money during the pandemic. But if everything is accurate and you have a good credit score, you can get a good interest rate when you take out a loan to buy a house.
Monitor the Housing Market
Prices of homes went up after demand increased during the pandemic. And since prices have remained high, people have stayed off the market and are waiting for prices to go down again. At this point, you can also take a wait-and-see stance until the prices of homes go down to a cost-effective level.
You should understand that real estate is a long-term investment. The value of homes bought decades ago has increased to a significant level today. Despite this, you should also consider the 2007 real estate market crash where many homeowners lost money due to the situation. So, monitoring the market allows you to prepare for any changes that will benefit you.
To make your task of checking the market more manageable, you should use a house-hunting app. The app should show a list of homes that are not yet in the open market. This means you should connect with the property owner and see if the price is suitable for your situation. And when you decide to buy a house, the app allows you to save on the cost of purchasing the home.
Check Your Savings
You should also need to make sure your savings is enough to cover the initial cost of buying a house. This is important since financial institutions will verify this information. The fund should be enough to cover the down payment and closing expenses of the purchase.
The down payment can reach up to 20 percent of the purchase price of the house. Your credit score plays a role in the down payment you need. So, you should make sure you have a good credit score before you look into buying a house. On the other hand, closing expenses can reach up to around five percent of the purchase price of the home. With this in mind, you should make sure your savings can cover these amounts.
Check Your Debt-to-income Ratio
Checking your debt-to-income ratio (DTI) is also crucial since it will determine if you can afford mortgage payments every month. When you check your DTI, you should include car payments, credit card debt, and student loans. But it does not include living expenses.
Many financial institutions prefer a maximum DTI of around 43 percent. But a lower figure is better if you want to take out a loan for your home purchase.
Buying a home is a dream come true for many people. But before you buy a house, you should check your situation and see if buying a house is a cost-effective option for you.