3 Simple Ways to Buy More Home in 2022
Looking at making a home purchase this spring? This quick article explains some out-of-the-box strategies to increase your purchase price. All lenders base your ability to buy a home based off your "debt-to-income" ratio or DTI. There are only two variables, your monthly recurring debt and your income. For income to count, it needs to have been on your taxes for two years, so I'm just going to skip over that. What you do have control over is your debt. Here is how to hack your debt in order to increase your top dollar loan approval this spring.
1. Pay Off/Refinance Your Car Loan
This may sound crazy, but your car loan is typically one of the shortest loan types offered. 2-7 years only means you have to pay off the entire amount in that short time. Lowering that payment or getting rid of it completely will allow you to purchase more home.
2. Pay Off Your Credit Cards
Credit card debt usually has a much higher interest rate than other types, but the monthly payment is usually quite low per month. If possible, pay off or down those balances to get free up some more of that monthly recurring debt. DO NOT CANCEL YOUR CREDIT CARD. The length of time you have had credit is very important. Pay off the card but don't cancel the card.
3. Refinance Student Loans
Student loan debt can stick with you for a couple decades. DO NOT DO THIS ONE WITHOUT CONSULTING YOUR LENDER. The rules around how to figure your student loan payment changes from time to time. If you are still in deferment and haven't had a payment yet, then definitely talk to your lender. As these loans are a many-year debt, you may not get much bang for your buck. Refinancing is normally better than paying off these loans.
What's This Boil Down To?
Since most loans follow a 43% DTI, every $100 you remove from your monthly debt, you add $43 a month of home eligibility. How much extra home does this mean you can buy? I'll save you the complicated math but basically it's almost $10,000 more!! ($9,880.37 at 3.25% on a 30 year loan). So roughly, every $100 of debt you pay off allows you to get about $10,000 more of purchasing power.
I hope this helps you as you prepare to purchase a new home! Don't wait two years to add new income, pay down that debt to step up into the house you want.
Until next time!
Interested in Buying a Home, Want a Sweet Guide?
I have just the thing for you. But first, are you dealing with:
- Your walls caving in (figuratively) aka too much in too little space
- Sick of having loud roommates (that don't pay you rent)
- Not having your own garage
- Having to wait on a landlord for repairs
- Not being able to paint your room
Then you are probably ready for buying a home.
Don't think you would qualify? Worried about a down payment? Not sure how much you can afford?
I have created a page that answers all those questions. Seriously. 4 steps to let you check everything you need to qualify for a mortgage, figure out how much house you can get, tips on lenders and more.
I only need your email so I can send you the workable sheet. Use your phone or whatever device. This advice is for here in the Bismarck and Mandan area all the way to the coasts. The process is the same. You can buy a house for surprisingly little down and not get stuck with a wreck.
Why is it Important to Know Your Home's Value
In a 2020 twist, our local Bismarck-Mandan real estate is on fire. Not literally, but if you know anyone trying to buy a home - especially first time home buyers - they are having to work hard. With COVID's effects dropping interest rates to all time lows, the affordability of homes has skyrocketed. This has created upward pressure on housing prices because more people can afford to buy a home than normal. That demand has literally cut our inventory in half. Now with more people trying to buy and less inventory that means most affordable homes end up receiving multiple offers. May the highest bidder win scenarios.
Top 3 Reasons to Know Your Home's Value
A home owner can refinance their home loan to improve the interest rate, pull out cash, or change the length of the loan. Typically a refinance is used to lower a payment or to cut the length of the loan. Cashing out equity - the difference between the value and what you owe - can be used for debt consolidation or purchasing another home.
Most people fall under the first option where they are saving money in monthly payment or interest paid. If you purchased your home with interest rates over 3% - you could be saving money with a refinance.
CAUTION - if you are multiple years into a refinance, lowering the interest rate/refinancing may cost you more! Check with your lender to see if it's worthwhile as a refinance restarts your amortization.
2. Upgrade or Downsize
If you are planning to make a change like stepping up to a larger home or getting out of town, you will need to know what your current home is worth. Unlike a refinance where you buy your house from yourself, there are different fees involved.
Knowing your value PLUS the fees involved in the sale and purchase of your home will set you up for success. That way you don't overshoot your target or give up something you could have had.
3. Estate Planning
If/when you have to help plan for your home or your parent's home, knowing that value is very important. It allows the retiree to plan on what will be affordable for their final move. An added bonus is if the home needs updating or work, you can find out its current value verse its future value if repaired.
This information will help you know how much you will have left over from the sale of the home or to help fund the new place. Also, if it is quicker to sell the home versus repair the home.
When you need to get the market value of your home, you have a few options.
DO NOT USE ZESTIMATES!
Now that we have that covered, a Realtor will be your best bet. A full time agent who is actually buying and selling homes will have the best market knowledge.
As an agent, we can access the data on the MLS to find the most accurate and recent data. Even with that data, a walkthrough or property inspection is a must. We can't see the finishes, the wear and tear, the settling issues and more that may affect the value of the house. If you want the most accurate information, be prepared to let your agent through.
If you are ready for a free home analysis, click HERE. We can pull up your home report or do a customized CMA for you. That way you can plan and prepare for your next steps!
Who Could Have Guessed COVID Would Make Homes Sell?
For the strangest year in our life, it is hard to believe that homes are in high demand! In February and March it looked like it was gunna be a slow year. Fast forward a global pandemic and home sales have jumped 10% across the country. Here in Bismarck and Mandan, we've swallowed our inventory and cut down absorption rate (how long it would take to sell all the homes listed) by 45%. If you are looking to buy a home or upgrade, this is for you.
Your Hot Market Strategy
If you have a home to sell - you are in luck! I've witnessed homes that I sold just last year around $200,000 appraise for $220,000 just a year later. That's some real money to use for the next home.
If you are looking to buy with nothing to sell, then you are the most sought after buyer. You don't have to wait on an appraisal, inspection, or other slow moving parts of the hot market.
So what does this process look like and how long does it all take?
- Get Approved - YOU HAVE TO DO THIS FIRST BECAUSE MULTIPLE PEOPLE WILL OFFER WITH YOU
- Find a Great Agent - One who can show you properties ASAP since there will be multiple people looking
- Be Ready to Make an Offer - If the home is decent and priced right, it will sell in a day!
- Give Yourself Time for Inspections - Many inspectors who make sure you're happy with the home can be booked 2-3 weeks out, so give yourself time to fit into their schedule
- Get Ready to...Wait - Appraisals are taking 6-10 weeks (even longer out of town) so that means it will be at least TWO MONTHS before you are moving if you are using a loan
- 2 Weeks to Close - transfer utilities for closing date, cable, internet, insurance, etc
- Final Walkthrough - last chance to make sure all cleaning, repairs, etc are done
- Close! - Sign 32-68 times and you get a new set of keys!
At the beginning of 2020, you could buy a house in 30 days and turn in your rental notice. Now, you find a house, get it under contract, THEN notify your landlord you will be moving. I recommend you get through the inspection phase first just to be sure.
Be Ready to Move Fast then Wait
That's really it. If you are using a loan to buy a home, it takes 2 months to purchase a home in our area now. If you go rural, 3 months. If you have something to sell under $400,000 you will love how fast decently priced homes go under contract. Just be ready to compete to find your next home.
Inventory is dwindling, financing is amazing, appraisals are slow so be ready to sprint, jog, and walk through the finish line with todays market.
3 Minute Guide for Your Success
Buying your first home is super exciting and also very scary. As an investor, property manager, and Realtor, even I get nervous when I purchase something new. That's why I wanted you to have this quick FAQ so you know the process - straight and to the point.
Step 1: Talk to Your Lender
Many first time home buyers start at the bank that has their checking/savings account. This is a great place to start since you already have a relationship there. Many banks now have online applications so you don't even have to mask up and go visit them in person. The other portion of first time home buyers check out online brokerages because they have attractive terms or other options. Here's what you need to know:
Make your banks compete with each other, it will save you $1000's!
All you need is a pre-approval letter so you and your agent know what price range you can look at and how much a month that payment will be. After that, you can switch lenders or whatever you need to get the best price, term, closing costs, etc. Even though it's your personal house, its business to them. FIGHT FOR YOUR BEST DEAL.
Step 2: Find an Great Agent
As an agent who didn't like Realtors to begin with, I've had to change my attitude. For those who have the time to learn everything there is to know about a house to make their own decisions - yeah, fine. Skip the agent. For the other 95% of people who need and agent or should have an agent, you need a great one.
How can you tell if they're good or not? *That article will come later* More people go with the first agent they talk with than shop around. To keep it simple, your gut will tell you after meeting them. Another great way is to check out their online reviews. Otherwise ask your friends, family, and other trusted people who they used.
You want to work with someone who cares more about you than their paycheck.
When an agent is $$ focused, we call them 'transactional'. When they actually care about you, we call them 'friends'. This is your largest purchase, its best to work with someone you feel comfortable calling with all your questions.
Step 3: Search, Sort, and Filter
You agent will hook you up with a direct feed to your local MLS service. Otherwise Realtor.com is the next best resource because they actually purchase their data from the local Realtor Boards. Zillow.com just rips the information off which is why they have so many inaccuracies. #ZestimatesFail
Find the area, size, amenities, bedrooms, yard, garage and kitchen size of your dream. Make sure it fits the budget and makes sense. Most times you'll make your list before you agent even gets to sit down. Its fine! You're excited and it really helps us narrow down the search.
Pick your top 3-5 houses, do walkthroughs, and see which one feels like home. If you're analytical, see which one makes the most sense and checks off the majority of your boxes. The home might have repairs or paint thant needs updating, but that can all be worked out.
Step 4: Your Agent Will Take Care Of
Yup, that's right. You hire an agent instead of doing it all yourself and you don't need to know much more. Just know this:
The seller has offered to pay your agent if they bring a buyer.
What's that mean? You don't pay an agent to work with them, the seller has offered to do it. If you team up with a good agent who cares about you, they will handle writing offers, picking prices, negotiating, finding inspectors, contractors, handle title documents and closing documents and get your home sale finished! BOOM - DONE.
What to Do Next?
If you're reading this and would like to know more, feel free to give me a ring, send a message, text, or email. The truth is many people start with an agent or a house, then figure out the financing. It doesn't matter the order so much but it saves time and heartache if you know what you can afford up front.
Buying your first home is a very exciting time and there is too much information out there. Get approved, get an agent who cares about you, and the rest will be taken care of.
Contact Me Today
Let's find you the right home at the right price.