Here’s what it will take to buy a home this year

Thinking about buying a new home in 2023?

First, the bad news: Affordability is still a serious challenge for most buyers, said George Ratiu, manager of economic research at realtor.com.

“Median prices are 10% higher than they were a year ago, and mortgage rates are 100% higher than they were a year ago,” he said. “On a median-priced home, that’s making monthly payments 64% higher than a year ago, or adding an additional $800 to $1000 to the monthly payment.”

Now, the good news: Inventory is up, so there are more homes to choose from, and therefore less competition, said Ratiu. Also, homes are sitting on the market a little bit longer.

“That’s putting downward pressure on prices, and providing buyers with more negotiating power,” he said.

That’s not to say buyers will find bargains in 2023, but the shopping experience will be less frenzied and more orderly this year, said Ratiu. “It’s not going to be anything like the market we saw last year or the year before. We’re looking at a much more ‘balanced’ market in 2023,” he said.

But you’ve still got to do your prep work. Here’s a checklist.

A for sale sign is posted in front of a single family house at Beverly Anne Street on June 13, 2022, in Las Vegas.  (Bizuayehu Tesfaye/Las Vegas Review-Journal/Tribune News Service via Getty Images)

A for sale sign is posted in front of a single family house at Beverly Anne Street on June 13, 2022, in Las Vegas. (Bizuayehu Tesfaye/Las Vegas Review-Journal/Tribune News Service via Getty Images)

Get your financial house in order

Wipe out as much outstanding debt as possible as this will allow you to allocate more of your monthly income toward the cost of homeownership,” said Rick Sharga, executive vice president of market intelligence at ATTOM, a leading provider of real estate and property data. “It will also improve your credit score, making you eligible for the best rates on a mortgage.”

Lenders prefer that mortgage, insurance, and tax payments account for no more than 28% to 33% of a borrower’s monthly income (although in higher-cost states, the percentage is often higher than 40%), said Sharga.

“They’ll also look at how much non-housing debt a borrower is carrying to determine how big a loan they’ll make,” he said, “or whether to make a loan at all.”

Get your financing in place

Once you have an idea about how big a monthly payment you can comfortably handle and have a sense as to what you’re looking for (what you need/want in a home in terms of location, size, style, etc.), start shopping for a mortgage lender. Find one who will pre-approve you for a loan.

“This will allow you to move forward more quickly when you do find a property you’re interested in, and give you a competitive advantage over other prospective buyers,” said Sharga. “Shopping for a loan also generally helps secure better loan rates and terms compared to just applying to one lender.”

Calculate all costs

Any idea what homeowner’s insurance — mandatory for almost all mortgages — costs these says? A lot.

“Wildfires in California, hurricanes in Florida, and other extreme weather across the country have sent premiums skyrocketing,” said Sharga.

Other costs that often not taken into consideration — especially among first-time buyers — include property taxes and HOA fees, which can add hundreds of dollars to monthly homeownership costs.

Also, “remember that inflation is going to stick around for a while, so the costs of heating the home and buying furniture are still high,” said Mitch Roschelle, founding partner of Macro Trends Advisors.

Be ready to commit

For most buyers, a home is a long-term financial commitment so make sure you are comfortable not only with the community you’re buying into, but also your job, said Ratiu.

“Make sure it’s secure and that you have enough money at the end of the [buying] process saved so that if you lose your job, you’re not in a pickle,” he said.

Also, make sure you plan on living in the home for at least three to five years because transaction costs are significant, ranging from 4% or more of the cost of the house, said Ratiu.

“A $500,000 home can be $25,000 in fees and various costs,” he said. “So if you’re just going to be there for a year and then sell it, be mindful of these costs.”

Personal finance journalist Vera Gibbons is a former staff writer for SmartMoney magazine and a former correspondent for Kiplinger’s Personal Finance. Vera, who spent over a decade as an on-air financial analyst for MSNBC, currently serves as co-host of the weekly nonpolitical news podcast she founded, NoPo. She lives in Palm Beach, Florida.

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Source: https://finance.yahoo.com/news/housing-heres-what-it-will-take-to-buy-a-home-this-year-165050707.html