The spring homebuying season is in full swing, but with rising inflation and mortgage rates holding steady, buyers need to be more strategic than ever. Navigating the current market requires careful financial planning and smart decision-making to avoid costly mistakes.
If you are looking to purchase a home in the coming months, consider these key financial steps to ensure you are prepared for what could be the biggest purchase of your life.
Avoid Major Financial Changes
Lenders closely examine your credit history, debt-to-income ratio, and overall financial stability when approving a mortgage. Even small changes in your financial profile can disrupt the loan approval process.
“Do not apply for anything. Any change in debt-to-income could be catastrophic to your approval,” warns Corey Vandenberg, mortgage loan officer at Lake State Mortgage. “Do not make any major financial changes, employment shifts, or large money movements without consulting your lender first.”
Applying for new credit or increasing your debt can lower your credit score and affect your mortgage interest rate. Lenders typically prefer a debt-to-income ratio below 36%, though some loans allow up to 43%. Keeping this number as low as possible can improve your chances of securing a favorable mortgage.
Prepare for Hidden Costs
Many homebuyers focus solely on the down payment but underestimate the additional costs that come with purchasing a home.
“The down payment is what most people think of, but there are lots of other things that drain financial resources, such as appraisals, inspections, title insurance, and lender fees,” says Nathan Mueller, certified financial planner and founder of BlackBird Finance.
Mueller also recommends setting aside $1,000 to $5,000 for minor renovations or updates to make the home your own.
Compare Mortgage Rates and Fees
While finding the lowest mortgage rate is important, comparing lender fees and closing costs can save you thousands in the long run.
“Frequently, the lowest advertised rates have such high fees that the borrower will not save enough in interest to offset them for five or more years,” says Grace Wilkins Maxwell, broker and owner of Canter Financial LLC. “If you plan to sell or refinance before then, that lower rate may actually cost you more.”
Discuss with your lender how long you plan to stay in the home and whether lower upfront fees or a lower rate would be the better option for your situation.
Explore Homebuyer Assistance Programs
With high mortgage rates and rising home prices, taking advantage of available financial assistance programs can make homeownership more affordable.
Vandenberg suggests asking your loan officer about down payment assistance or first-time homebuyer loan programs in your area. These programs can reduce the upfront cost of buying a home and help buyers who might otherwise struggle with affordability.
Additionally, Wilkins Maxwell recommends looking into property tax abatement programs. “I have had several clients who qualified to have their taxes waived, saving them hundreds of dollars per month, but they had no idea these programs existed,” she says.
Get Preapproved Before Shopping
One of the biggest mistakes homebuyers make is looking at homes before getting preapproved for a mortgage. Without a preapproval, you may fall in love with a home that is outside your budget.
“You don’t want to go shopping for homes in a certain price range and then find out that you’re not going to get approved for that level of mortgage,” says Lawrence Sprung, certified financial planner and founder of Mitlin Financial.
Preapproval gives you a clear understanding of what you can afford and makes you a stronger candidate when making an offer. Vandenberg emphasizes that buyers should start this process early. “You wouldn’t go shopping without your wallet, so don’t start looking at homes if you’re not preapproved and ready to buy.”
Protect Your Investment with Insurance
Homeowners insurance is a must, but there are other forms of financial protection that homebuyers should consider.
“Make sure you have life insurance, especially if you have a family, just in case something happens to you shortly after purchasing the property,” says Kelsey Wilson, certified financial planner and founder of BlackLines Financial. “This ensures that the property can be paid off efficiently.”
Wilson also advises homebuyers to consider disability insurance, which can help cover mortgage payments if you are unable to work due to illness or injury.
Final Thoughts
Buying a home is a major financial commitment, and the current market conditions make preparation even more important. By avoiding unnecessary financial changes, saving for unexpected expenses, comparing mortgage options, exploring assistance programs, and securing the right insurance, you can put yourself in the best position to navigate the homebuying process successfully.
With careful planning and the right strategy, you can confidently step into homeownership this spring.