As mortgage rates remain near record lows, this year may be the right time to buy a new home.
The average rate for the 30-year-fixed mortgage stands at 2.65%, dipping from 2.67% just a week earlier.
“If you are looking to purchase a home in 2021, you must be prepared to go to war,” said Steve Laret, owner at The Steve Laret Team, a real estate agency. “Inventory is at an all-time low … there is still a lot of money out there looking to take advantage of the historically low rates.”
As demand remains competitive, here’s what you should do, according to housing experts.
Get a pre-approval
You should consider obtaining a pre-approval letter from a lender confirming that you have a conditional commitment for a mortgage from a lender.
“This not only allows the buyer to potentially remove a financial contingency, but gives confidence to a seller that financing won’t be an issue upon closing,” Waller said.
Do a self audit of your finances
But before you get a pre-approval letter, look at your finances first. This is especially true of your debt-to-income ratio, which is calculated by dividing your monthly debt obligations by your pretax income. Lenders want a ratio of 36% or less.
“Even if you have strong credit, if your debt-to-income ratio is too high, you may have a difficult time getting pre-approved for the amount you need,” said Tyler Forte, CEO of Felix Homes, a real estate brokerage firm. “I recommend setting a strict budget and trying to use your savings to pay down some of your debt such as student loans, car payments or credit card debt.”
If you’re in a bidding war, tap your emotions to get the seller’s attention.
“A less commonly used technique that could be a key differentiator is writing a personalized (not a generic) letter, addressing the sellers and telling them why [you] love the home,” said Ryan Waller, real estate agent at Home Group Realty, a real estate listing firm.
Conducting your own background research on the seller — without being intrusive — may also pay dividends.
“If you have the seller's name, look them up on Facebook for clues of things they may like about the house (gardening, decorating, etc.) that you can casually put in the letter,” Waller said. “Maybe you’ll even notice you have some mutual friends!”
Provide a larger deposit
To convince the seller you’re committed to the property, you may have to put down more than you previously intended.
“Where possible, have the ability to provide a larger deposit than requested (potentially even proof that [you] have already obtained it, like a picture) which demonstrates your seriousness and commitment,” Waller.
Read more information and tips in our Housing section