After two years of a hot housing market, aspiring buyers may be wary of entering the market even if they are ready to purchase a home. But don't count yourself out before you've tried. The market is competitive, but interest rates are still low enough to make it worth your time. Shopping around for the best mortgage rate you can get can save you thousands over the lifetime of your loan. Here are some tips for getting your finances in order before shopping for a new home.
1. Shop Around—But Do It Before You Start Looking for Homes
Take some time to talk to different lenders and determine who will give you the best rate. Searching for the best rate and locking in on a lender before you begin your home search is crucial in this intense market. Your offers will have more weight if you prove a lender is willing to give you a loan. When it comes to a bidding war, you don't want to be caught with the less appealing offer because you didn't put the work in at the beginning. Don't waste time comparing lenders while you are putting in offers. Find the lender with the best rate first and then enter the market as a strong buyer.
2. Pre-Approval Might Not Be Enough Anymore
In today's aggressive housing market, buyers need every advantage. A pre-approval letter from a lender used to be enough to prove to sellers that you are making a serious offer. But a pre-approval letter doesn't give buyers the competitive advantage it used to. Completing the underwriting process before beginning your home search will show buyers you mean business. It will also provide them with confidence in your ability to get to closing quickly since you will only need the final appraisal to secure your mortgage loan. Some sellers see a fully underwritten buyer as comparable to a cash buyer.
3. Establish How Much House You Can Afford
Knowing your interest rate makes it easier to determine how much house you can afford. The lender with the best rate will be able to tell you how much you are pre-approved for based on their financial background check. This will help you narrow your search to homes within your price range. Knowing how much home you can afford will also help you put your most competitive offer first.
4. Limit Rate-Shopping to a 30-Day Window
Rate shopping can impact your credit score if you aren't careful. Too many hard credit inquiries can lower your score. The exception is if you have a grouping of many inquiries within a 30-day window. Credit reporting agencies understand that as a consumer, you are likely to want to shop around for the best rates and may have many inquiries within a short period. If you keep your shopping around to within a 30-day window, your credit report will flag this group as one hard inquiry.
Before you hit the open houses, shop for a mortgage. Securing the best rate can save you hundreds of dollars a month. You can compare rates through Zillow's online mortgage marketplace or by talking to local banking institutions.