Ready to Buy? Prep Now Before the Market Gets Too Competitive

Why begin home buying prep now

Why start home buying prep now? Because, with mortgage rates looking likely to fall, you could soon be competing with a host of other home buyers. Like you, they’ve been waiting on the sidelines for this opportunity.

Unlike you, they might not have the advantage of reading this article, leaving them less prepared for the energized market. You, on the other hand, can stride in confidently, fully equipped with the knowledge to make credible offers, secure competitive mortgage rates, and find your ideal home.

So, whether you’re buying your first home or planning to move, keep reading to discover helpful tips to give you an edge before the market becomes more competitive.

In this article (Skip to...)

• Why prep for home buying
• Starting the home search
• Strategizing for increased competition
• The bottom line

Mortgage rates

For the last three-plus years, mortgage rates have been climbing. Of course, there have been peaks and troughs. But the overall direction has been relentlessly upward.

Now, finally, we have a realistic prospect of mortgage rates falling. Don’t get carried away. They’re more likely to glide gently lower than plummet.

But each small fall will probably attract new buyers into the housing market. Those who’ve felt locked out by high rates will discover they finally have a chance to realize their homeownership dreams.

And things could quickly get crowded out there. Those who have done their home buying prep can more easily beat off much of the competition.

Market trends as mortgage rates fall

While first-time buyers have felt locked out of homeownership, many existing homeowners have felt locked into their houses. You can see their point.

Suppose you’d locked your current mortgage rate years ago when mortgage rates stood at 3.%, 4.% or 5.%. You wouldn’t want to move if that involved a 7.% or 6.% mortgage rate.

So, many homeowners have stayed put, waiting for lower mortgage rates to make upsizing, downsizing or relocating a less painful option. Once those rates drop far enough, we should see more homes for sale.

That’s great for home buyer choice. But don’t necessarily expect the extra supply of homes to mean a fall in their prices. Few of those homeowners will wish to stop being homeowners. So, they’ll be competing with you to buy their next home. If anything, home prices might rise.

And that makes home buying prep even more important. You’re going to need the sharpest competitive edge possible to get the home you want.

Why prep for home buying

The point of home buying prep is to get you the home you want and to ramp up your chances of seeing your offer accepted. There are two parts to the mortgage element of this.

First, you need to maximize the amount you can afford by qualifying for the lowest possible mortgage rate. And, secondly, you want to make your seller take your offer seriously.

Getting the lowest possible mortgage rate

The lower your mortgage rate, the bigger the loan you can afford. Lenders won’t let you borrow more than they think you can comfortably afford, so getting a low rate boosts your home buying budget.

Start by boosting your credit score. This involves:

1. Scrupulously paying every bill on time
2. Reducing your credit card balances, preferably to below 10% of each card’s credit limit
3. Holding off on opening new (or closing existing) credit accounts

Lenders calculate your debt-to-income (DTI) ratio. That is the proportion of your monthly income that’s immediately eaten up by servicing your existing debts, plus your new homeownership expenses and inescapable obligations such as alimony and child support. The lower your DTI, the better. So, paying down debt now lets you get a bigger mortgage later.

Now, make sure you have a big enough down payment. You need the minimum for the type of mortgage you want. But, if you can put down more than that, you might get a lower mortgage rate.

For example, if you want a Fannie Mae- or Freddie Mac-branded conventional mortgage, you’ll need a down payment of 3% of the purchase price. But, putting down 3.5% or even 3.25% could earn you a lower rate.

Don’t forget, you may be eligible for down payment assistance. Check out the programs available where you’ll be buying to see if you could benefit.

Making your offer credible: Get pre-approved

Pre-approval is a vital step that many first-time buyers skip. But it’s a crucial element of your home buying prep.

You get a letter from a lender saying it’s thoroughly checked out you and your finances. And it is ready to lend you up to a certain figure.

Imagine you’re a home seller. You get two offers from total strangers. They could be fantasists, for all you know. One tells you he’ll be able to finance the deal. The other has a letter from a lender saying she’s already lined up her finances.

Which would you choose? Many sellers would accept an offer for thousands less from the pre-approved borrower.

Starting the home search

It’s often a good idea to have your pre-approval letter before beginning your home search. You’ll know exactly how much you have to spend on your next home.

Then, choose the neighborhood you want to live in. Make sure it will fulfill your needs for as long as you plan to be there.

For example, if you have a family or are planning to start one, good schools may be an important priority. Or, if you’re an empty nester looking forward to retirement, easy access to excellent medical facilities could be vital for you.

Overlay on those priorities considerations such as your commute, whether you’re near family and friends, how conveniently close stores are, or, perhaps, access to highways or an airport if you travel a lot.

The same goes for the home itself. You may well have to compromise when you come to buy.

Maybe, ideally, you’d like three bedrooms, three bathrooms and a pool. But will you turn down your perfect home because it has two and a half bedrooms? Could you make do with two bedrooms and a sofa bed for occasional guests? Might you add a pool later?

Everyone will have different priorities. But recognizing yours now could save time later.

Strategizing for increased buyer competition

A helpful step in home buying prep is adjusting your mindset. From now until you first turn your key in your very own front door, becoming a homeowner must be your priority.

Of course, your other responsibilities—like caring for your family and showing up for work—are important too. But focusing on your home buying journey should be your big priority during this time.

Be ready to act quickly. If a real estate agent calls with what sounds like your ideal home, drop everything to visit it as soon as you can.

And, once there, be ready to be decisive. While you shouldn’t rush your decisions, be ready to act swiftly if you find a home that meets all your criteria.

Negotiation tips

Perhaps the best tip when negotiating a home purchase is to avoid doing it alone. Instead, use an expert.

While the traditional model involved the seller paying the buyer’s agent commission, recent changes mean that buyers are now responsible for paying their agent directly.

So choose yours carefully. You want a full-time professional who knows the local property market well and has a great record as a negotiator. He or she will help you find candidate properties, advise you on all aspects of your purchase, and negotiate with the listing agent.

If you’re determined to go it alone, read Knowing When to Walk Away: Negotiating a House Price With a Stubborn Seller.

Home buying prep: The bottom line

The time and effort you invest now in home-buying prep could pay dividends in the long run. As Benjamin Franklin said, “By failing to prepare, you’re preparing to fail.”

That’s likely to be especially true if the housing market transforms in the way most experts expect. As mortgage rates fall, you can expect more choice but perhaps stiffer competition.

Begin to prepare by getting your finances in as good shape as possible. Then, get pre-approved for a mortgage.

Armed with that, recruit a trustworthy buyer’s agent to find your ideal home, negotiate its purchase, and hold your hand through every stage of the process until closing.

Nothing guarantees success. But home buying prep certainly improves your chances.