How To Buy A House During Rising Inflation: Tips For Success
If you’re ready to jump into the housing market even while inflation is rising, there are several strategies you can follow to boost your odds of buying the best home at the right price.
Analyze The Market
Before looking at homes, study the housing market in the communities in which you want to buy. Determine what the average selling prices are today. This will give you an idea of where you can afford to move. It helps to work with a real estate agent who knows these markets well. These professionals can give you a list of recently sold homes so that you can see how much buyers are paying.
Determine Your Financial Situation
It’s important, too, to create a household budget listing your monthly income and expenses, including those expenses that fluctuate each month, such as groceries, dining out, entertainment and clothing costs. Once you create this budget, you’ll know how much money you can spend on a monthly mortgage payment, which will help you determine how much home you can afford. Make sure, too, that you have enough money saved for a down payment and closing costs. Know that most lenders prefer that buyers have enough dollars in savings to cover two monthly mortgage payments in addition to the costs of a down payment and closing costs.
Improve Your Credit Score
Your three-digit credit score is an important number when buying a home. Lenders study it to determine how well you’ve paid your debts in the past. A lower credit score typically means a higher interest rate, which equals a higher monthly mortgage payment. Most lenders consider a FICO® credit score of 740 or higher to be a very good score that will give you lower interest rates.
If your score is below this, you can steadily improve it by paying your bills on time each month and paying down your credit card debt. Do this, and your score will steadily improve. If you want the lowest interest rates, it might make sense to wait to buy until you can improve your score.
Choose Your Loan Type Carefully
You have several loan types from which to choose when looking for a mortgage. If your credit score is low, you might consider an FHA loan, which requires a down payment of just 3.5% of your home’s purchase price if your FICO® Score is at least 580.
If you’ve served or are serving in the military, a VA loan comes with no required down payment at all. You can also qualify for conventional loans – those not insured by a government agency – with required down payments of as low as 3% of your home’s purchase price, depending on your credit.
Speak with your mortgage loan officer or real estate agent about the different types of loans available to you.
Try To Buy A House Quickly
If you’re looking for a home during a period of rising inflation, be prepared to act quickly. You want to buy before housing prices rise even higher. To increase your odds of doing this, get preapproved for a mortgage with a lender.
During the pre-approval process, a lender will check your credit and verify your income and debts. The lender will then send you a preapproval letter stating how large of a loan it is willing to approve for you. Once you have this letter, you know exactly how much home you can afford.
You’re also considered a more attractive borrower from sellers who want to make sure that home sales don’t fall apart when buyers can’t get financing. Armed with a preapproval letter, you can make offers quickly and close your loan in a shorter period.
