January 11, 2021 by Emily Huddleston
So you’ve decided to make 2021 the year you finally buy your first home. With mortgage rates remaining at historic lows, now is as good a time as ever to make the dream of homeownership a reality.
But what do you need to know about buying a home in 2021? Are there any insider tips that can help you along the way? What can you be doing right now to help prepare yourself for becoming a first-time homebuyer this year?
To help you get started, real estate and financial experts weighed in with their best advice. Here are their top tips for becoming a homeowner in 2021.
Put together an experienced team. Getting your offer accepted in the competitive 2021 housing market starts with your team. The first step is to find a local mortgage broker that doesn’t charge you fees and to get your pre-approval locked in so you know your numbers and budget. Then it’s time to go shopping with your realtor who should be an expert at negotiating on your behalf. Having the right team on your side will prevent stress and give you a fun and exciting home buying experience. – Ehler Lending
Get pre-approved. Consult a lender to review your income, expenses, and financial goals in order to determine the type and amount of mortgage you qualify for. A pre-approval letter provides an estimate of what you might be able to borrow and demonstrates to home sellers that you’re serious about buying. It also provides you with bargaining power which could give you an advantage over other buyers. – Homeland Lending
Define your homebuying goal. Do this by asking yourself, “am I buying a home or investing in real estate?” Your primary residence is an investment in your lifestyle and family; it’s not an income-producing asset. – Carlton Wealth
Check your credit score. Pull a copy of your credit report from annualcreditreport.com to make sure there are no errors and make sure you check your scores through one of the credit bureaus before letting a lender check your credit. You want to make sure you have the highest credit score possible to get the best rate on your new home mortgage. – Best Credit RX
Rebuild your credit if needed. Your credit score was important when the economy was booming, now it’s crucial that you have a great credit score, and it is that much more important if the economy dips further. There is good news – record-low interest rates on mortgages, auto loans, and credit cards. So start rebuilding and ensure that your FICO is in tip-top shape. – Blue Water Credit
Determine how much you can afford. Whatever amount you are approved for is not the right way to think about what you can afford. Instead, think about the following:
- How much of a down payment do you have and is it 20% of the property value to avoid PMI (Primary Mortgage Insurance)?
- Can you afford the mortgage payment each month (including escrow)?
Usually, your approval limit is a lot higher than either what you can afford each month or what you can afford to put 20% down on. – Atwood Financial Planning
Ensure you’re financially prepared. Homebuyers need to be financially prepared for the commitment a home purchase brings. They need to understand the difference between the mortgage they are qualified for and what actually fits within their financial plan. I caution my clients not to over-extend their monthly budgets and to factor in the total cost of homeownership; not just principal and interest payments, but insurance and taxes as well. – Caviness Wealth Management
Get your financial house in order. A huge part of buying a home is just getting your financial house in order. Basically making sure you have recent statements for your bank accounts, copies of your tax filings, and other documents readily available. Everyone thinks that banks can pull up this information electronically, but the process is incredibly time consuming and should be done before you find your dream home. – Fig Loans
Have your documentation reviewed upfront to avoid any last-minute surprises. Contact your mortgage broker before starting the house shopping process and have your file fully reviewed with all documentation needed by lenders upfront. This will enable you to be competitive in the market, and avoid last-minute surprises or issues. – Martel Mortgages
Maintain 100% open and honest communication with your loan officer. Tell your loan officer everything in regards to employment, income, housing history, credit history, assets, everything – even if you don’t think it is pertinent or even if you think it will hurt your chances of becoming approved. Surprises in the underwriting process of buying a home are never a good thing and most likely could have been resolved and corrected had they been openly communicated. – Delaware Financial Capital Corp.
Don’t change jobs or take out new loans. Stability, employment, and income show the lender how much house you can afford and are important indicators for qualifying for a mortgage. So don’t change jobs or take out new loans while in the process of buying your new home. – First Portland
Have a safety net. If you don’t have any funds saved towards a down payment, consider waiting as you never know what unforeseen expenses you may encounter with a new home. Having a safety net will provide some financial security. – Franklin Savings Bank
Steer clear of becoming house poor. Use 25-30% of income as a rule of thumb to evaluate what you can realistically afford (that includes everything from the monthly mortgage, HOA, property tax, power/electric, and all the fixings). Your decision shouldn’t be based solely on emotions – stay strong and don’t stretch your budget. – Evan Vladem, Associated Investor Services
Consider taking out a home equity line of credit. If you are a current homeowner with significant equity in your house, consider taking out a home equity line of credit (HELOC) to help finance the down payment of your desired home purchase. This allows you to make a stronger offer that is not contingent upon selling your home. In order for this to be effective, you have to be confident that you can sell your existing home quickly and have the ability to make both mortgage payments for the period of time between the new purchase and sale of your existing home. – 4J Wealth Management
Get certified ahead of time. With home inventory levels extremely low, positioning yourself to have the best chance of getting your offer accepted, is critical. Arguably, the most important component of this is ensuring that your loan application is fully underwritten prior to making any offer. – The Family Mortgage Team
Submit an offer with a pre-approval letter. When buying a house, make sure you submit an offer with a pre-approval letter from a mortgage lender. This is very important because this signifies to sellers that you are a serious buyer who has done his/her homework. – Fairfax Lending
Make a competitive offer. In a competitive market, your offer needs to be competitive. Many lenders offer a “platinum” pre-approval if you provide all your financial documents upfront so you can be approved pending appraisal and title. Ask your lender to reach out to the listing agent when your offer is submitted. – Home Loans by Josh
Beware of your closing costs. Closing costs can quickly become a considerable amount of money including; appraisals, title searches, taxes, etc. Work closely with your realtor to clearly outline and estimate these beforehand. – Bayntree Wealth Advisors
Emily is part of the content marketing team and enjoys writing about real estate trends and home improvement. Her dream home would be a charming Tudor-style house with large windows to let in lots of natural light. Email Emily