Thinking of ditching the rental and buying a home this summer? You’re not alone. Summertime is when the homebuying season typically shifts into high gear. More inventory generally becomes available, homes get prettied up to be put on display and the spike in house hunting — especially after much of America has been in pandemic lockdown for so many months — can often lead to bidding wars and increased prices.
If you’re ready to buy, that’s great. But if you’re just dipping your toe in the water, keep reading. Interest rates remain low and while available inventory is still a challenge nationwide, now is a great time to prepare for when the market eventually cools off.
This article will guide you to be sure you have all your ducks in a row and will be ready to make a solid offer when you find your perfect dream house.
Four things to keep in mind if shopping for a home over the summer
1 — Know (and manage) your DTI
Your debt-to-income ratio — often referred to as the acronym DTI — reflects the relationship between how much money you owe and how much money you make.
In a perfect world, prospective homebuyers should have as little debt as possible while earning a steady and stable income. This will allow them to take on a mortgage on top of any other debt they might have.
Having a higher than desired DTI doesn’t preclude you from getting a mortgage, but the terms surrounding that mortgage — most significantly the type of mortgage and the interest rate you are offered — may be less desirable than if your DTI was lower.
When applying for a mortgage, your loan officer will take all your monthly debt — like student loans, car loans and outstanding or recurring credit card balances — and divide that by your gross monthly income. Ideally, he or she will want to see a DTI ratio of 36% or less.
2 — Credit reports & credit scores
Like it or not, someone is already keeping track of how good you are at handling credit. Let’s correct that: 3 companies are tracking your credit: TransUnion, Equifax and Experian. When requested by lenders (and sometimes borrowers), these companies pull together credit reports that outline all the loans you’ve ever had, your payment history and how much credit you have been approved for — even if you’re not currently using it. Because a credit report lays out your creditworthiness and the likelihood that you’ll repay your mortgage on time, lenders rely on it — and a credit score — when deciding on whether to approve your loan application.
Like a credit report, your credit score plays a huge part in your ability to get a mortgage. Just by looking at your credit score, banks and mortgage companies make assumptions on how risky it is to loan you money. Scores can range from 300 – 850 points, with “good scores” landing somewhere in the middle. Some lenders state a score of 600 is average; others say you have to be at 700 to be considered ‘good.’ But don’t despair. Even if your credit score is lower than average, there are loan products out there to consider.
3 — Get pre-approved (before hitting open houses)
Unless you’re planning to make an all-cash offer, house hunting without first being pre-approved for a mortgage is just snooping in other people’s homes. Pre-approvals show that you mean business.
A pre-approval is an underwritten estimate of how much home you can afford and how much debt you can take on. Pre-approvals are way stronger than pre-qualification, which are really just a guesstimate of what you can afford. Once a lender has determined how much they’re willing to loan you, you’ll receive a pre-approval letter indicating the amount. Some Realtors won’t even entertain working with a client unless they have been pre-approved.
Having this letter shows that you’re a serious buyer and that you have the backing to make good on any offer you put down (within the pre-approved amount). Not only does a pre-approval save you time, but it’s also a great bargaining chip when you’re buying in a competitive market.
4 — Pace yourself
It’s a fact that when the weather gets warmer, people start househunting. Of course, it differs based on where you’re looking to live, but springtime tends to be busy in general. The high volume of house shopping slips into summer, too, as some people want to be settled into a new home before starting a new school year. And while competition may be fierce and inventory a little tighter than in the spring, don’t be afraid to pounce if you find the right home at a reasonable price, especially if you’ve been pre-approved.
But, if you can get organized over the summer, work with a good real estate agent to narrow down the communities you’re interested in and stay in touch with your loan officer, it might make sense to pace yourself until early fall. That’s when the number of available properties on the market is still relatively high — as compared to other times of the year — and sellers may be more eager to make a deal before winter approaches.
Of course, this might not hold true for you. Factors influencing real estate prices can be extremely local. You may find more competition for a specific property while others nearby go unsold even longer. Just keep at it: work with your lender to determine how much home you can afford and then have your realtor only show you homes that make sense for you and your budget.
Starting the home buying hustle this summer?
Homebuying doesn’t happen overnight. Carve out time to do your due diligence upfront and there will be fewer hiccups along the way. Get an early start and you may be enjoying your new home while the days are still long!