So, you’ve got your heart set on becoming a homeowner in 2021? Buying your own house to hunker down in is a worthy goal: interest rates are at record lows.
Beyond the obvious—brushing up your credit score, squirreling away for a down payment, hearting properties on Zillow—what can you realistically be doing right now to prepare yourself for buying a home next year?
Real estate experts weighed in, and here’s their best advice for budding homeowners.
Shop for lenders
The good news: Yes, interest rates are low. But the not-so-good news? Loans are tougher to get as banks are tightening their standards, says Linda Bell, a personal finance expert with NerdWallet. This is to be expected in economic downturns, but the coronavirus pandemic is making it harder for banks to get a good read on borrowers’ financial pictures, thanks to furloughs, agreements with other creditors to put bills on hold, and more.
If you’re getting close to launching your home search, and you want to increase your chances of getting approved, it makes sense to shop around with various lenders, Bell says.
Check in with your credit score weekly
In the past, you were entitled to a free credit report from the three credit bureaus (Experian, Equifax, and TransUnion) once a year. But Bell tipped us off to something interesting: You can now get your credit report on a weekly basis for free. With so many people feeling anxious about their financial health, the national credit reporting agencies are giving people weekly access to monitor their credit reports until May 2021.
“If you need to improve your credit profile, make sure you are paying your bills on time and keeping your credit balances low,” Bell says.
Deposit any financial gifts ASAP
Twelve percent of homebuyers (and 28 percent of buyers under age 28) shore up their down payment with a financial gift from friends or family, according to a report from the National Association of Realtors. But there are a lot of rules surrounding gift money used for a down payment because lenders want to make sure the money is, in actuality, a gift and not an additional loan that will overextend borrowers.
“If you’re fortunate enough that your family is helping with the down payment, get that gift now and deposit it,” says Payman Emamian, a Compass real estate agent in Los Angeles. “It will make things easier down the line as it will help you avoid more questions about the gift.”
Lenders want the money to be received before proceeding with the loan and will request a “gift letter” from the friend or family member that states how much they’re giving, where the money is coming from, and that they don’t expect to be paid back.
Crunch your numbers on a mortgage calculator
Review your budget and determine what you are comfortable spending on a home, says Bryan Lima, a mortgage loan originator in Georgia. Once you factor in things like HOA dues, taxes, and an emergency repair fund, you very well could find that what you’re comfortable spending on a mortgage is less than what you’ll be approved for.
A mortgage calculator is a good starting point for this exercise, but as you move along in your home-buying journey, you’ll want to consult a mortgage broker or lender to help review your income, assets and liabilities and look over your credit report, Lima says. You can start gathering up documents that lenders will want, including tax returns and financial statements, but be prepared to continue rounding up the most up-to-date financial information as you get closer to actually buying.
Research loan programs and first-time buyer grants
Your lender should be able to help you find loan programs that suit your buying needs. But doing some preliminary research makes you a savvy buyer.
If you’re a first-time buyer, you may qualify for down payment and closing cost assistance, or even special loan programs with lower interest rates. NerdWallet has a resource that breaks down first-time homebuyer programs by state.
As you look at loans, consider a rehab loan, suggests David Parsons, a broker and owner of RE/MAX North Professionals in Burlington, Vt.
“Many lenders are now offering competitive rehab loans which allow you to borrow enough to purchase a home that needs some work and roll into a conventional loan once the work is complete,” Parsons says. “This may allow you to find a ‘diamond in the rough’ that others have overlooked and give you an opportunity to make it your own.”
For more tips like these, visit Apartment Therapy.
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