Buying a house is a minefield full of “I didn’t know thats.” From choosing the right home to qualifying for the best mortgage, you want to minimize the things you don’t know.
Lower your “didn’t-know” ratio. With a shifting lending landscape, rising interest rates and down payment priorities based on your local market, here’s what you’ll need to know about buying a home this year.
What’s the first step to buying a house?
With acute shortages of homes for sale in so many markets throughout the nation, getting a preapproval for a home loan
is more important than ever. Cash buyers used to give sellers confidence that a deal would close quickly, but there are fewer cash buyers. And when houses weren’t in such short supply, buyers didn’t face the pressures of intense seller’s markets
With a lender lined up and a preapproval letter in your pocket, sellers know you’re serious.
“With a preapproval, [sellers] feel comfortable that, ‘Hey, this guy is a legit person who is going to buy and close,'” says Mat Ishbia, CEO of United Wholesale Mortgage in Troy, Michigan.
[Some buyers] don’t realize how many underwriting deal breakers there are.
“[Prospective buyers] need to immediately start with the lender,” agrees Patti Michels, a real estate agent in Hinsdale, Illinois, a suburb of Chicago. “See what you can afford and see what your hurdles are going to be.”
Michels says shopping for homes before gaining a loan preapproval is a big home buyer mistake
. “[Some buyers] don’t realize how many underwriting deal breakers there are" that can hijack — or significantly delay — getting a mortgage.
Those home loan approval pitfalls can include issues with student loans, significant recent cash deposits, and the manner in which self-employed income is reported.
How much house can I afford?
‘How much house can I afford?’ is the first-time home buyer question Ishbia says he is asked most often. He offers a rule-of-thumb to help.
“Instead of telling them about debt-to-income ratios,” Ishbia says he tells first-time buyers to consider three times their income as a starting point.
So, if you and your spouse have a combined annual income of $110,000, “most likely $330,000 is your price range, plus or minus a couple of percent,” he says.
But rather than guessing, you can simply take the first step — talking to a lender.
“That’s why you get the mortgage first,” Ishbia adds.
» MORE: 7 programs for first-time home buyers
What’s up with rising interest rates?
Another change impacting the real estate market is rising interest rates. Michels says it’s definitely a concern for prospective buyers she’s talked to, who are thinking, “let’s do this sooner rather than later.”
In fact, 82% of millennials (ages 18-34), the largest share of current first-time home buyers, say buying a home is a priority, according to NerdWallet’s 2018 <a href="https://www.nerdwallet.com/blog/2018-home-buyer-report/" style="box-sizing: border-box; background-color: transparent; margin: 0px; padding: 0px; co