As March arrives, so does peak homebuying season. With mortgage rates at a record low—dropping slightly below 6%—this spring is poised to be the perfect time to make an offer.
“The weather isn't the only thing that warms up come spring. March is really when things start to come back to life in the real estate world," says Elyse Sarnecky, investor services senior associate at Marketplace Homes in Plymouth, MI.
"More listings come on the market, sellers who want to move before summer really get serious, and prepared buyers have options that might not have been there a few months ago.”
By moving forward now—rather than waiting and trying to perfectly time the market—you may be able to find the perfect home and lock in a more affordable mortgage at the same time.
Spring inventory trends
March is often the month when everything works in the buyer's favor.
You are early enough to enjoy inventory, serious enough to outbid the casual shoppers, and quick enough to beat the summer feeding frenzy.
“The winter inventory has loosened up, and sellers are listing their homes in droves, giving buyers much greater selection. The competition is real but not severe; it will happen in late May, when every serious buyer floods the market,” says Sain Rhodes, real estate specialist at Clever Offers in Seattle.
If you decide to go ahead in March, you’ll have an advantage that will no longer be there come June.
“I have closed 40% more transactions in this period than in any other period. March buyers have negotiating power and face less competition than in the summer,” adds Rhodes.
Why it makes sense to buy now (and why it doesn't)
There’s really no one-size-fits-all answer for when it’s the “right” time to buy—it depends on your unique situation.
According to Emily Green, branch manager at Churchill Mortgage in Meridian, ID, buying a home now is a solid choice for many people. Prices have leveled out a bit and rates have recently come down enough to make homes more affordable.
“In reality, the best time to buy a home was 10 years ago and the next best time to buy is now, as long as the numbers make sense for your financial situation,” explains Green.
At the end of the day, it’s not about timing the market, it’s about time in the market.
“The sooner you can start building equity and secure a lower price point, the better off you will be financially,” adds Green.
Green warns that if you wait too long and more buyers reenter the market, home prices will inevitably go up and any savings from the lower rates will be completely negated by higher price points.
On the other hand, if you’re still building your savings for a down payment, working on credit, in between jobs, or simply don’t have an urgent need to move, waiting can absolutely be the smarter choice.
How to buy a home this spring
Home in on what you want
House hunting can be very exciting, and it can be easy to get swept away in the excitement and lose perspective on what home you really want.
Jennifer Beeston, executive vice president of national sales at Rate in Coral Springs, FL, suggests making a list of your deal-breakers and must-haves as well as the monthly payment you’re comfortable with.
“Keep this sheet of paper handy so that you stay true to your housing goals. It sounds very basic and silly, but buying a house can be emotionally charged and having this road map back to your goals can be a lifesaver,” explains Beeston.
Get pre-approved
It’s a good idea to get a pre-approval letter from your mortgage lender before you start looking for a home.
This way you’ll know how much they’re willing to lend you and what type of homes are realistic for your situation. A pre-approval can also position you as a more serious buyer in a seller’s eyes.
Ideally, you’d get pre-approved three to six months before your search but if you haven’t—no worries—you can still get pre-approved at any time as there is no official deadline.
To get pre-approved work with a mortgage lender. Be prepared to provide it with such documents as recent statements from your bank and investment accounts as well as your pay stubs and tax forms.
Prioritize your down payment
Long before you actually buy a home, you’ll want to start saving for your down payment. This is your initial, upfront investment in the home.
“The median first-time homebuyer’s down payment is about 9%, but it’s common to put down more or less than that amount depending on your personal situation,” explains Michael Young, director of home lending at Wealthfront in San Francisco.
Many first-time and repeat buyers decide to put down 20% to avoid the need for private mortgage insurance. To get a rough sense of the down payment you’ll need, you can multiply your anticipated home price by the percentage you plan to put down.
For example, if you’re interested in a $500,000 house and want to put 20% down, you’ll need to come up with $100,000. The more you have saved up, the less you’ll spend on your property in the long run.
Pay down as much debt as possible
One of the major things a lender will assess is your “DTI,” or debt-to-income ratio.
Paying down your debt can improve your DTI and make it easier to get approved for a loan.
“A good rule of thumb is to try to keep your back-end DTI below 43%. Lower is even better,” explains Young.
If you haven’t been focused on debt payoff, now is the time. This might mean looking for ways to quickly increase your income through extra hours at work, side hustles, or part-time jobs.
Keep your credit score in good shape
Your credit score helps lenders gauge your ability to repay your loan, and a higher score often leads to lower rates. As a result, there can be a real benefit to improving your credit score.
To do so, pay your bills on time, don’t max out your credit cards, resist the temptation to close old cards, and don’t apply for new credit or take out any new loans.
“You’ll likely be eligible for the best loan terms available with a 780 or above. If your score is in the 500s, it might be difficult for you to get a loan,” says Young.
If you're unsure of where you're at credit wise, take advantage of free credit score tools online or ask your credit card issuer if it can provide your score.
Think twice about changing jobs
When you take out a mortgage, lenders will want to see your employment history. Generally, they’ll look at a period of two years and it’s to your advantage to be able to show stable employment over that time. Depending on how you’re paid, a lender might request additional information related to your earnings.
This isn’t to say you can’t change jobs in the months leading up to a home purchase.
“Moving from one salaried position to another is unlikely to be an issue, provided your new salary still supports the size loan you are trying to take out. If you have questions about this, it’s smart to talk to your loan officer about your specific situation,” explains Young.
Article by Anna Baluch for Realtor.com
