Is 2020 Your Year to Purchase a Home?

Buying your first house is a minefield full of “I didn’t know thats.” From choosing the right home to qualifying for the best mortgage, you want to minimize the things you don’t know. So, let’s lower your “didn’t-know” ratio. 

What’s the first step to buying a house in 2020?

With acute shortages of homes for sale in many markets throughout the nation, getting a preapproval for a home loan is more important than ever.

Prospective buyers need to immediately start with the lender, see what you can afford and see what your hurdles are going to be.

With a lender lined up and a preapproval letter in your pocket, sellers know you’re serious.

What credit score is needed to buy a house in 2020?

First step is finding out what your credit score is. If it’s lower than you like, there are many ways you can start improving it today. Once you connect with a lender, they will let you know what your current score is. Higher is better, as many of you know, but don’t get discouraged if it’s not where you expected it to be. 

Many lenders are willing to work with you to find the right loan for you, or educate you on how to improve your score if need be. 

Here are the credit score categories. If you’re in the green, you’re in good shape! Even in yellow, many lenders will still work with you on a mortgage.

How much house can I afford?

To calculate how much house you can afford, we take into account a few primary items, such as your household income, monthly debts (for example, car loan and student loan payments) and the amount of available savings for a down payment. That said, as a home buyer, it’s important to have a certain level of comfort in understanding your monthly mortgage payments. While your household income and monthly debts may be relatively stable, your overall savings and how much you wish to allocate toward your home can vary depending on how much you want to set aside for a rainy day or how much you want to set aside for a future expenditure.

A good affordability rule of thumb is to have three months of your housing payments, including your monthly expenses, in reserve. This will give you an additional buffer for covering your mortgage payment in case there is some unexpected event.

Total debt-to-income (DTI) ratio

An important metric that your bank uses to calculate the amount of mortgage you can borrow is the DTI ratio, or simply put, the ratio of your total monthly debts (for example, your mortgage payments including property and tax payments) to your monthly pre-tax income. 

2020 mortgage rate trends

Mortgage rates have lingered around 4% APR for months now, and, barring an economic surprise, are expected to remain favorable this year.

“Mortgage rates aren’t expected to move much in either direction in 2020. If the forecasts are accurate, mortgage rates aren’t likely to go up a whole lot,” says Holden Lewis, who produces NerdWallet’s mortgage interest rates forecast. “That’s faintly encouraging to the legions of people who have difficulty finding affordable homes to buy. After all, if mortgage rates remain steady, those home shoppers won’t have to worry that rising rates will push monthly payments past their limits of affordability. But they still have to contend with rising home prices.”

Down payments in 2020

People still think they need 20% down, three percent down, 5% down are the ways people are buying homes.

In fact, 6% was the median down payment for first-time home buyers who financed a purchase in 2019, according to a report by the National Association of Realtors. For repeat buyers, the median down payment was 16%.

You don’t need 20% down to buy a home. It’s the biggest myth out there.

You’ll need a Real Estate Agent in your corner

Some first-time buyers believe they can save some money by not hiring a real estate agent. This couldn’t be farther from the truth. In fact, not using a real estate agent can cost you big time. You may end up paying for items that are usually paid for by the seller. 

You should do your research and hire an expert. You can ask friends or family members for a recommendation or find one on websites like ours!