Tips for Houston-Area Homeowners and Home Buyers
According to the latest Houston Association of REALTORS® (HAR) Market Update, despite record-low inventory, the sales of single-family homes rose for an eleventh straight month and set a new pricing record. For luxury homes priced at $750,000 and above, home sales surged 164.3% year-over-year. In the $500,000 to $750,000 housing segment, sales soared 132.2%. Homes priced $250,000 to $499,000 saw an 80.6% increase.
Low interest rates have made home buying even more affordable. However, interest rates are trending upward, prompting many people to lock in interest rates before they increase. While many homeowners may be excited to see their home values increasing, it can be overwhelming to new homebuyers trying to purchase their first house in an intensely competitive seller’s market with multiple, above-asking or cash offers.
Here are some tips that can make the home-buying process easier.
Optimize Your Financial Health
One of the first steps on the journey to home ownership is determining exactly how much house you can afford. A general rule of thumb is to keep your total housing expenses between 25% and 28% of your gross monthly income. When calculating affordability, don’t forget to factor in your regular income, savings and monthly expenses. Your credit also comes into play, as it will help determine the interest rate you’re eligible for.
Monitor Credit Scores and Interest Rates
During the home buying process, keep a close eye on your credit score. If you have a security freeze to prevent fraud, you can call the credit bureaus to temporarily or permanently lift the freeze. Your lender will need to look at your credit during the preapproval phase and again right before giving you the “clear to close.” Your credit will also come into play when setting up utilities at your new home. Having a good credit score eliminates many costly deposits as you create new accounts.
If you’re a current homeowner, now may be a great opportunity to take advantage of the historically low interest rates by refinancing. Most people refinance to get a lower rate and reduce their monthly mortgage payment. Refinancing to a 15-year mortgage can help you secure a lower interest rate and pay off your house much sooner.
Getting preapproval is an absolute must. To get preapproved, your lender needs to evaluate your income, assets and credit score to determine how much you can be approved for and what your interest rate may be. A prequalification letter, while helpful, is not as accurate. Therefore, sellers may be hesitant to enter into a contract with a buyer who is not preapproved by a lender. During the preapproval process, be prepared to submit up to one to two years of bank statements for the underwriter to review. To discuss your borrowing needs, you can always get in touch with an experienced Allegiance Bank lender.
Consider Down Payment and Closing Costs
A 20% down payment is ideal for the interest and mortgage benefits. It eliminates the need for private mortgage insurance (PMI) costs. However, it’s not always possible—or necessary. According to the National Association of REALTORS®, most buyers typically financed 88% of their home. First-time buyers typically financed 93%.
In addition to the down payment, there are closing costs associated with buying a home—application fees, attorney fees, escrow, homeowners association fees and more. Closing costs vary widely, but they typically total 3 to 6% of the home’s purchase price. Additional out-of-pocket costs of the home-buying process include the earnest money deposit, homeowner’s insurance, home inspection and appraisal fee.
Learn about credit scores, home ownership and more at the Allegiance Bank financial education center.