Though home affordability is a key issue, you can take steps to improve your odds of buying a house.
U.S. News & World Report conducted a survey in early May 2021 to determine the biggest issues faced by homebuyers. About three-quarters responded that they’re worried about affordability.
This isn’t surprising since almost 84% of respondents say they have seen price increases in the area where they want to purchase a home. Let’s take a closer look at the concerns that homebuyers have right now.
What Homebuyers Worry About Most
During the pandemic, mortgage rates began trending downward, according to data from Freddie Mac. While there was a slight increase in mid-February this year, rates began to decrease again in early April.
Because mortgage rates have been so enticing, homebuyers may be competing with real estate investors who are paying more than the list price for a home. With so many potential buyers, a housing shortage has emerged. This causes home prices to surge even more due to limited supply.
The survey responses highlighted two major concerns: rising prices and the scarcity of homes to buy.
Here are more survey findings:
- Right at 37% are only concerned about affordability.
- Nearly 27% have concerns about the availability of homes they like.
- Respondents at 35% say they are worried about both affordability and availability.
- About 1% do not share those concerns.
However due to today’s low interest rates, even with higher prices, home mortgage payments, are more affordable today than they were 15 years ago! Give me a call and let’s see what might work for you.
How Much Home Can I Afford? Click Here to get that Calculated.
What Homebuyers Are Doing to Improve Their Odds of Buying a Home
When asked what they’re doing to prepare for a home purchase, nearly 65% say they are saving money to increase their down payment. This is an excellent move because it will also lead to a lower monthly payment.
- More than 55% are trying to improve credit scores.
- Just less than 54% have decreased their spending.
- More than 47% are trying to increase their income.
- Only about 41% are working on reducing debt.
When asked what else they’re doing to increase their chance of homebuying success, close to 38% say they are looking at cheaper properties and almost 43% are expanding their search area.
What Can Homebuyers Do to Increase Their Purchasing Power?
When asked to identify the most important factor for selecting a mortgage lender, about 26% cite interest rate and fees. If you improve your credit score, you can improve your interest rate on your mortgage.
How much can a great score save? If your FICO score range is 640 to 659, you have fair credit. According to FICO, if you are borrowing $350,000 for a home, your monthly principal and interest is more than $1,600. Total interest over a 30-year loan is more than $230,000.
Now, what changes if your score is 760?
If you are borrowing $350,000 for a home, your monthly payment goes down to just over $1,400. Total interest over a 30-year loan is nearly $160,000.
Total savings with a 760 FICO score: about $72,000.
Plus, you save $200 per month on payments. Imagine how nice it would be to have an extra $2,400 a year to put in your kid’s college fund or to pad your emergency savings.
Click here to use Stanford Mortgage Refinance Calculator to calculate your rates for May.
How to Improve Your Credit Score to Get Top Mortgage Rates
There are some simple actions that you can start doing today to boost your credit score.
- Lower your credit utilization ratio.
- Pay down debt.
- Avoid applying for credit.
- Review annual credit reports.
Lower Your Credit Utilization Ratio
Your credit utilization ratio is the amount of credit you’ve used compared with the amount of credit you have available. Credit utilization is 30% of your FICO score, so it’s a big factor to keep in mind.
The standard advice is that you should have a credit utilization ratio less than 30% or your score could go down. But here’s an insider tip: Your utilization ratio should not exceed 10% if you’re going for a high credit score.
To be clear, that’s a 10% utilization ratio on your credit cards overall and on your individual cards. The FICO algorithm considers both in the calculation.
Pay Down Debt
Only 41% in the survey say that they are working on decreasing debt to improve their chances of being approved for the home they want to buy. If you have the resources, this is a straightforward way to boost your score.
Let’s say you have a $1,000 limit on your credit card. You have a balance of $500, so your ratio is 50%, which is bad for your score. Now, cut that debt to $100, and your score improves the most because your ratio is 10%. Paying down debt saves you interest expense, but it also improves your score.
Another bonus? Your debt-to-income, or DTI, ratio is an important factor when you apply for a mortgage. This ratio is the percentage of your gross monthly income that’s needed to meet your monthly debt obligations. So, when you decrease your debt, your DTI ratio goes down, too.
Avoid Applying for Credit
Lenders sometimes like to pretend they’re behavioral psychologists. When you apply for multiple credit cards in a short amount of time, a lender might look at the inquiries on your credit report and assume you’re desperate for credit. It doesn’t matter if it isn’t true. It’s the perception that you’re on the brink of a money crisis.
Review Annual Credit Reports
You can get free credit reports from credit bureaus Equifax, Experian and TransUnion, normally once every 12 months, but because of the pandemic, now once a week until April 20, 2022. Review the reports to make sure there aren’t any errors that could bring down your score.
You also want to look for accounts you didn’t open. This is a sign of identity theft and requires immediate action. A fraudulent account can bring down your score if the perpetrator racks up purchases in your name and doesn’t pay the bill. The Federal Trade Commission has a list of steps to take if you find something amiss on your reports at IdentityTheft.gov.