The good news for homebuyers is that California’s hot market is showing signs of cooling. In fact, median home prices saw a 2.3% decrease from August to September 2021.
With more inventory becoming available and rates expected to stay below 3.5% for a 30-year fixed mortgage, homeownership may be closer than you think. Here’s what you can do now to ensure you’re prepared to enter the real estate market as prices soften and more homes become available.
Know What You Owe
Your debt-to-income ratio is important when it comes to qualifying for a home loan. The lower it is, the better rates you can expect. Lenders will calculate your debt-to-income ratio by dividing your monthly debt by your pre-tax income, which should be no higher than 40% to 45%. You may find your debt is too high, so work on paying it down. When determining the monthly payment you can afford, be sure to budget for additional expenses including homeowners insurance, repairs and maintenance.
Your Home Savings Goals
To purchase your new home, you’ll need enough savings for a down payment – at the minimum, 3% to 5% – and closing costs which typically cost from 2% to 3% of the home’s sales price. Lenders may also look at your financial reserves to determine if you’ll be able to meet your monthly payments. Make sure you have savings of at least two months to cover the mortgage, although some lenders may require more. Having a designated savings account and making automatic contributions to it will keep you on track.
Avoid Large Purchases And Opening New Credit Lines
Buying a new car or opening new lines of credit can affect your loan pre-approval amount. Lenders prefer borrowers with low debt-to-income levels. High debt indicates that you have less money to pay your mortgage and other homeownership expenses. Pause buying large items and opening new lines of credit if you want to qualify for a higher loan amount. And if you’re carrying a credit card balance, work on paying it off.
Once you feel ready to start shopping, a pre-approval letter from your lender shows you are approved for a specific loan amount based on your credit score and current financial information. It also gives you a clear understanding of how much you can afford to spend on your new home. If you were already pre-approved, remember that home loan pre-approvals expire, so you’ll need to update your approval if it’s been a while since you’ve shopped for a home. Most are valid for 60 to 90 days. Lenders know that changes to your financial situation could affect their ability to fund the loan, so they will likely require updated financial documents before issuing an updated pre-approval letter.
Lean On The Experts
Buying a home can be challenging, that’s why we offer a variety of mortgage loans to meet your needs. Our Home360SM Program offers your own loan consultant and realtor who will guide you through the process and prepare you to buy a home. When a participating agent represents you in buying a home, you’ll get a 20% rebate on their commission, which is credited on your closing statement1. The program also includes My Home Savings, which helps you to save up to $50,000 for a down payment and earn more dividends than a typical savings account.2
Santarelli, Marco. Norada Real Estate Investments, California Housing Market 2021: Home Prices Are Moderating, October 19, 2021.
California Association of Realtors. C.A.R. releases its 2022 California Housing Market Forecast, October 7, 2021.
- Rebate payment is made by First Team Real Estate or HomeSmart Evergreen Realty. Rebate is credited to your benefit at the close of transaction, and will be lowered by any reductions to the commissions paid to the participating agent in a concurrent purchase and sale of a home. Commission will vary. To be eligible for the 20% rebate, Member must complete the transaction with the agent assigned by SchoolsFirst FCU Home360℠. Using SchoolsFirst FCU for a mortgage loan is not a requirement to earn the rebate. Purchase price must be greater than $150,000 after all credit adjustments. All rebates are subject to limitations, lender guidelines, and other requirements. Certain properties may not be eligible for rebates. Rebate is 20% for purchase only of a residential property in California. Please consult a qualified tax professional for advice on tax implications from receiving a rebate. First Team Real Estate and HomeSmart Evergreen Realty are not affiliated with SchoolsFirst FCU.
- Variable rate, subject to change daily at our discretion. Limited to existing Members who are buying a home and participating in SchoolsFirst FCU Home360℠; limit one per Membership. A withdrawal within the first six calendar days after opening incurs an early withdrawal penalty of seven days’ dividends. Thereafter, early withdrawals are subject to an early withdrawal fee of $10 and closure of the share; the $10 fee will be waived if the full balance is used for a home purchase. Fees could reduce the earnings on the account. Additional deposits allowed to the maximum balance of $50,000. See SchoolsFirst FCU’s Disclosure & Agreement of Terms and Conditions brochure for additional details about Share Savings Accounts. Rates and program valid as of date and subject to change Professionals.