When looking to buy a new home there are several important factors that you must take into account. These include but are not limited to mortgage rates, debt-to-income ratio calculations, the down payment, the seller’s incentive, and the real estate agent. Does the agent use a multiple service listing database? And do you get along with and trust your real estate agent to get you the best deal and navigate the local market seamlessly?
These parameters to buying a property have a significant impact on the overall experience, so do your research and make sure you know what you are doing. Start making the necessary financial changes in your life as soon as you can and ensure that you check out the reviews for the estate agents you are considering before committing to their services.
Mortgage Rates
When considering buying a new home it is important to make all of the necessary financial considerations and work out what you can reasonably afford. Unfortunately, in the current post-pandemic climate, mortgage rates have seen a rise, with the average US fixed rate for a 30-year mortgage rising to 4.16% in March 2022. However, there are sensible and proactive measures prospective homeowners can take to alleviate this financial strain. The sooner you start to save, the better. Setting up a savings account and automatically depositing a portion of your paycheck into it every month is a great start.
You should sit and work out what you spend per month on essentials, like rent, bills, food, transport, and so on. Beyond this, work out what you spend on luxuries, such as travel, entertainment, and unessential clothes. If you find that you can make cuts and changes to how you spend your paycheck, implement these immediately. Do not stress, this is only temporary while you are preparing to buy a property. Once you have calculated how much of your paycheck you can realistically save each month, set up a direct deposit into your savings account of this amount.
Debt-To-Income Ratio
A mortgage lender uses a system known as the debt-to-income ratio to determine if you can afford to make the monthly payments on the mortgage loan for your desired property. Your debt-to-income ratio is worked out by calculating the percentage of your gross monthly income that you use to cover your monthly debt payments. The Federal Housing Administration sets its desirable debt to income ratio at 43%. This means that ideally all of your monthly housing-related expenses should not exceed 43% of your income each month. If your monthly expenses exceed this amount, you should bear in mind that you will have a more challenging experience securing a mortgage loan for your property.
The Down Payment
One of the biggest obstacles many prospective homeowners face when looking to purchase a property is the down payment. Millennials, in particular, are finding it very difficult to save up the lump sum of money needed for a down payment. Not only did the millennial generation graduate during one of the worst recessions in American history, but they are also saddled with student loan debt.
However, it is a misconception that you need to have a large lump sum saved in order to obtain the down payment on your first home. There are down payment assistance programs set up to help you. These programs are initiatives sponsored by federal, state, and local governments, as well as private nonprofit organizations, and they offer loans, including no-interest and even forgivable loans. They also offer grants to buyers who need a little extra financial help. Additionally, they provide cheap conveyancing services to ensure that all aspects of property transactions are handled efficiently and affordably.
The Seller’s Incentive
Some sellers are particularly motivated to sell their property quickly, while others are more apathetic as to whether their house sells immediately or not. If you find that a seller seems keen to make a fast sale, there might be room to negotiate a better price. When homeowners put their houses on the market but are content to keep on living there, for the time being, there is generally less room for price negotiation.
However, there are reasons why a seller may be highly motivated to sell. For instance, they could have a sudden need to move out due to a job relocation, or a desire to pay off one of their mortgages with another. It is recommended that you consult your real estate agent to determine the motivations of any seller who seems particularly keen to sell quickly, as you could potentially counteroffer and negotiate a much better price.
Multiple Listing Services
When you are searching for your dream home, it helps to know a bit about the search tools at your disposal. You should try to go through a real estate agency that uses an MLS, or multiple listing service. A multiple listing service is a database established by cooperating real estate brokers to provide data about properties for sale. This is just one way a real estate broker can make their website accessible and effective.
The MLS allows agents to see one another’s property listings with the aim of connecting homebuyers to sellers. Under this agreement, both the listing and selling brokers benefit by consolidating and sharing information and by sharing commissions. As a buyer, you benefit from this system as you get access to a wider range of properties for sale and can trust that the information is reliable and frequently updated.
An example of this system is the New Jersey MLS, which was founded more than forty years ago. The NJMLS is a multiple listing service that provides more North Jersey real estate listings than any other source and is used by thousands of real estate agents. Members of NJMLS have access to accurate statistics, school information, property tax details, demographics, and other crucial information to share with prospective home buyers. Agents rely on New Jersey MLS to create credible listings, lasting client relationships, and always up-to-date information. This is a fine example of the kind of service you should be looking for from your real estate agent.
The Real Estate Agent
As well as having good technology and providing you with a maximized list of available real estate listings, there are other important considerations to make when choosing your real estate agent. For instance, you need to ensure that they are good communicators and that you have a natural rapport with them. The process of buying your dream home will be massively enhanced by a real estate agent you can connect with, who understands your vision and is committed to making it a reality. You want fast and reliable communication, positive energy, and honesty from your real estate agent. The journey of buying a property can be long and at times overwhelming, so find an agent you are happy to spend time with and who seems patient and committed.
On top of this, it helps to find an agent with demonstrable experience and expertise. Try to find an agent who has a proven track record of closing on homes relatively quickly and getting great deals for their clients. A real estate agent with a great knowledge of the local market will also give you an advantage as they can guide you through the nuances of the specific market in which you have chosen to look. Ask your agent about average house prices and time on the market to gauge their knowledge.
And finally, it never hurts to read online reviews! Find yourself a real estate agent who has a plethora of satisfied customers who have left glowing reviews. After all, you are trusting this person with getting you the best deal possible on your dream home. This is not a decision you can take lightly. Do your research before committing to an agent.
To Wrap It Up
Hopefully, this guide has opened your eyes to some of the key considerations you need to make when thinking about buying a property. You must be aware of mortgage rates at the time you wish to buy a property, and be aware of the ways you can make this process easier for yourself. You do not necessarily need to be put off by higher mortgage rates, as you can start making life changes now to ease this financial strain. Make the necessary calculations and, where possible, start saving.
Next, consider the debt-to-income ratio calculations made by mortgage lenders. If your monthly house-related expenditure is more than around 43% of your monthly paycheck, you are likely to find it harder to secure a mortgage loan.
As well as mortgage considerations, you also need to start planning for the down payment on your new home. For many young people, saving up the lump sum needed for a down payment seems impossible in today’s climate. Luckily, there are ways to make this possible. Down payment assistance programs can provide loans and grants which provide prospective homeowners with the chance to make the downpayment on their dream first home.
Talk to your real estate agent about the seller’s incentive and if they are in a rush to sell, see what you can do to lower the price of the property. Negotiation is key, and for this to be a success, you need a good real estate agent. Ideally, they will use a multiple listing service, which will provide a thorough and accurate database of all of the available properties on the market in your area, with up-to-date information. Moreover, your real estate agent should be communicative, positive, experienced, driven, and have positive reviews. If you take all of these considerations, you will be well on your way to securing the house of your dreams. Good luck and happy house hunting!