Why October is the best month for buying a new home

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As the weather cools, so can the housing market. And that could mean big savings for house hunters — especially those planning to buy in October.

 

“October can be a good month to buy because it often provides a good mix of more affordable prices and housing supply available for purchase,” says Jacob Channel, LendingTree senior economist. “And buyers may face less competition from others who already purchased a home in the summer.”

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In fact, according to a 2021 ATTOM report, October is the best month to buy a home since it offers the lowest premiums (2.9%).

But just because your chances of scoring a deal are higher doesn’t mean you shouldn’t look for more opportunities to save. Here are a few tips to help you find the home of your dreams.

 

4 tips to maximize your home search

No. 1: Focus on boosting your financial profile

Prospective homebuyers should try to save as much money as possible for a down payment while they work on boosting their credit score. The higher your credit score and the more money you’ve saved, the easier it typically is to get approved for a loan and make a purchase.

 

Not only can a higher down payment lower your potential mortgage amount, but it may also help you avoid extra costs, like private mortgage insurance (PMI). PMI is often required if your down payment is less than 20% of your house’s purchase price.

You’ll also generally need a credit score of at least 620 to qualify for a mortgage, depending on the type of mortgage you get. A higher score often improves your chances of qualifying for a mortgage and getting a better rate. So things like paying off credit card debt and putting debt payments on autopay can go a long way in helping you prepare your finances for a mortgage.

No. 2: Be open to negotiation

October may come with less competition than in the summer, when more folks tend to house hunt. But that doesn’t mean you should shy away from negotiating if you find your ideal home, Channel says.

 

“You’ll typically have more leverage when negotiating with a seller over things like price or who pays closing costs,” he says. “Of course, that doesn’t mean buyers should become overzealous and assume that they can ask anything they want from a seller. Remember that no matter when you’re planning on doing it, buying a house usually requires a bit of give and take from both buyers and sellers.”

No. 3: Stay in the loop about listings

You never know where (or when) your dream home will go on the market. And staying up to date with listings is essential during the house-hunting process. The key is knowing where to look — and that goes beyond signing up for alerts.

 

The Department of Housing and Urban Development (HUD) lists many homes for sale on its website. Viewing HUD listings, Channel says, can be especially helpful for homebuyers, as the properties listed are often cheaper than properties you might find elsewhere.

 

For those who don’t want to spend all their time scrolling through sites to find their ideal home, Channel suggests getting in touch with a local real estate agent. They’ll be able to understand your wants and needs and provide matching listings when they hit the market.

No 4: Shop around for the best mortgage

Buying a home may be the biggest single purchase you ever make. So, like any big purchase, you’ll want to shop around to find the best deal. Beyond finding that home of your dreams at a price you can afford, that means making sure you’re fully satisfied with your mortgage. After all, it may be with you for the next 30 years.

 

“People may not realize it, but different lenders can offer different rates to the exact same borrowers,” Channel says. “As a result, shopping around for a mortgage can potentially help you find a lower rate and save tens of thousands of dollars over the lifetime of your loan.”

 

Once you find a mortgage that works for you, the next step would be getting preapproved. That can help speed up the homebuying process, bringing you closer to owning your new home.

 

This article originally appeared on LendingTree.com and was syndicated by MediaFeed.org.

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Do these 8 things before thinking about buying a home

 

Buying a home is a huge, expensive decision, no matter if you’re a first-time homebuyer or have been buying and selling real estate for decades. Homeownership comes with financial upsides and risks, and for many people, it’s an emotional transaction as well.

 

So how do you get fully prepared to buy a home? Getting ready should begin long before you start scrolling through online listings, going to open houses, or working with a real estate agent.

 

Today, I’ll help you understand if homeownership is right for you, how much you can afford, ways to save for a down payment, and tips to get the most affordable mortgage possible. The more you know about the home buying process and prepare for it, the cheaper and less stressful it will be.

 

Here’s more about each step you can use to prepare your finances to buy a home.

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Before you start obsessively searching for your dream home, the first step is to make sure owning a home is the right move for you. There’s no financial rule that says you must buy a home. In some cases, you’re better off not becoming a homeowner.

 

Whether you should own or rent depends on various factors, including:

  • Where you want to live. If you’re in a large city, renting can be much less expensive than buying a home.
  • How long you plan to live somewhere. In general, it’s not wise to buy a home unless you’re confident you will live in it for at least three years. That gives you enough time to recuperate your buying costs and prepare to sell the property.
  • What lifestyle you enjoy. For many people, being a homeowner allows them to enjoy hobbies, such as gardening or home remodeling, which they couldn’t do as a renter. But renting may be more appealing to those who travel frequently or don’t want to be responsible for the upkeep and ongoing maintenance of a home.

 

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If you decide to explore homeownership, the next step should be doing a deep dive into your credit reports and scores. Staying on top of your credit is always important, but it’s critical before buying a home because it’s a primary factor that mortgage lenders use to evaluate you.

 

Not only does repairing and building credit help you get approved for a mortgage, but it’s a critical way to qualify for a low-rate loan, which saves a massive amount of interest.

 

For example, if you have excellent credit and get a $200,000 fixed-rate mortgage, you pay about $145,000 just in interest over the life of a 30-year loan. But if you have average credit, you’ll pay close to $190,000 in interest, or $45,000 more, for the same loan!

 

Your credit scores get calculated using data in your credit reports, which frequently changes as new information gets added and old data falls off. Check your credit reports and get any errors, such as incorrect account balances, payment dates, or personal information, corrected as quickly as possible.

 

You can access your information directly from the national credit bureaus: Equifax, Experian, and TransUnion. There are also many free credit sites, such as AnnualCreditReport.comCredit Karma, and Credit Sesame.

 

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If you have black marks on your credit, such as late payments or accounts in collections, start making repair efforts at least six months to a year before applying for a mortgage. You can’t remove accurate negative information, which stays on your credit reports for seven years, even if you pay off an overdue balance. However, the older a delinquent account gets, the less it hurts your credit scores.

 

Before submitting a mortgage application, consider paying off any past due balances or negotiating settlements with creditors. Getting caught up on late payments helps clean up your report, making you look less risky to a lender.

 

Important! One word of caution is that if you have old past-due accounts, making a payment can restart the statute of limitations, resulting in legal risks. So, if you have a large amount of delinquent debt, consult with an attorney before you speak to your creditors or send a payment.

 

Read The Statute of Limitations and 4 Options for Old Debt for more information about dealing with old debts wisely.

 

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Before applying for a mortgage, figure your DTI and see what changes you may need to make. Mortgage lenders evaluate a few debt-to-income ratios to know how your expenses stack up against your income. It’s a good indicator of how comfortably you could take on additional debt.

 

Most home lenders require the payment on the mortgage you’re applying for to add up to less than 30% of your income. And for all your debts, including the new mortgage, a typical acceptable ratio is no more than 40%. If you exceed these lending limits, you may need to pay down debt balances. But every lender has different underwriting guidelines, and they may adjust DTI ratios based on your financial situation.

 

When you’re preparing to buy a home, be sure to pay your bills on time, reduce your debt as much as possible, and avoid applying for new credit accounts, such as a credit card or auto loan. Those actions boost your credit and help lower your DTI.

 

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The next step is to consider all the home-buying costs you’ll have to cover.

Check out Bankrate’s How Much House Can I Afford? Calculator, which allows you to input your monthly income and estimated home expenses.

 

In addition to a mortgage payment, here are some additional expenses to keep in mind:

  • Property taxes are owed to the local government and vary depending on where you live. An average amount could be in the range of $3,000 to $4,000 per year.
  • Home insurance is required by mortgage lenders to protect the property from various disasters, such as fire, windstorms, and vandalism. The price depends on many factors, including the home’s value, location, and amenities. An average premium could be in the range of $800 to $1,500 per year.
  • Private mortgage insurance (PMI) is another requirement when you pay less than a 20% down payment. The premium depends on your home’s value but could add a range of $50 to $150 to your monthly mortgage payment until you have sufficient equity for your lender to cancel it.
  • Homeowner association (HOA) fees may be required in some neighborhoods or communities to pay for communal amenities such as a pool, boat dock, or landscaping. The cost could be $50 per month or much more.
  • Home maintenance should always be expected. A good rule of thumb is to save at least 1% of your home’s value each year for upkeep. For example, if you have a $300,000 home, budget $3,000 per year to pay for potential repairs such as an HVAC system or a water heater that quits working.

 

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If your goal is to buy a home, you’ve probably been thinking about how to save money for a down payment. To qualify for a mortgage, you must prove to a potential lender that you have enough savings to fund a down payment.

 

Since lenders don’t finance 100% of a home’s price, the down payment affects the balance you owe, in addition to the proceeds from a mortgage. The more you can pay, the less risky you are to a lender. And the larger your down payment, the smaller your mortgage and monthly payments will be.

 

While a down payment could be in the range of 5% to 20% of a home’s purchase price, you may have additional upfront expenses to pay at the closing table, including:

  • Credit check
  • Loan origination or underwriting fee
  • Appraisal
  • Home inspections
  • Mortgage discount points (which allow you to get a lower interest rate)
  • Property survey
  • Title insurance
  • Deed recording

When you make a purchase offer on a home, one tip is to request that the seller pay some of your closing costs. You can also haggle with your mortgage lender not to charge specific upfront fees. In real estate, just about everything is negotiable, so don’t be shy about asking for concessions.

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1. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes.

2. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.

 

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If you’re a first-time homebuyer, a veteran, have a low income, or want to buy property in a rural area, it’s possible to qualify for down payment assistance through these programs:

The benefits of down payment assistance programs vary depending on their rules and your circumstances, but they offer low or no down payment, making it much easier to become a homeowner.

 

The money for a down payment can come from your savings or gifts from your family. And if you’re already a homeowner, your down payment can come from the money you make when you sell your current home.

 

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Here are some ways to save a down payment quickly:

  • Downsize your housing by moving into a less expensive place so you can save money for your down payment fund.
  • Automate your savings by having a portion of your paycheck deposited into a dedicated savings account or setting up a recurring monthly transfer.
  • Bundle services to pay less for utilities such as cable, internet, and wireless plans.
  • Shop your insurance if it’s been a while since you compared prices for auto or renters insurance.
  • Save all extra money such as raises or bonuses at work, gifts, and tax refunds.
  • Start a side hustle to create additional income to squirrel away for a new home.

 

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Another way to come up with a down payment on a home is to tap a retirement account, such as IRA or 401(k). While I don’t recommend this option, some provisions allow it.

 

For a traditional IRA, you’re allowed to withdraw up to $10,000 for a down payment if you’re a first-time homebuyer. You must pay taxes on the withdrawal—but even if you’re younger than 59½, you won’t get hit with the 10% early withdrawal penalty.

 

If you have a Roth IRA, you can withdraw your original contributions without owing taxes or a penalty, no matter your age. However, tapping the earnings portion of the account before age 59½ means that taxes and the early withdrawal penalty would apply.

 

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If you have a workplace 401(k) or 403(b), they typically allow “hardship” withdrawals, which include buying or repairing a primary home. However, making a distribution means paying income taxes and a withdrawal penalty if you’re younger than 59½. Plus, you may get restricted from making contributions to your retirement account for six months.

 

Some workplace retirement accounts allow loans. You may be permitted to borrow half of your vested balance, up to $50,000. You must repay it with interest to your account within five years. However, the term may be longer for a home purchase. If you repay a loan on time, you don’t have to pay income tax or a penalty on the borrowed funds.

 

One of the biggest problems with taking a loan from your 401(k) or 403(b) is that if you don’t repay it on time, the outstanding balance becomes an early withdrawal. That means you must pay income tax plus an additional 10% penalty if you’re younger than age 59½.

 

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If you leave your job or get fired, you’ll probably have to come up with the entire outstanding loan amount within a short period, such as 60 days. So be sure to read your retirement plan document or ask your benefits administrator for all the details on taking a loan before signing up.

 

To sum up, if you need to tap a retirement account to buy a home, taking a modest withdrawal from your Roth IRA is the best possible option. However, in general, I don’t recommend draining a retirement account for any reason. It comes with too many downsides, including not being allowed to make new contributions for a period, missing employer matching, being left with a depleted retirement account, giving up the opportunity to build wealth.

 

While taking a loan or withdrawal from a retirement account may make sense for some home buyers, the best scenario is to have plenty of savings, so you don’t need to touch your retirement nest egg in the first place. Always speak with a financial adviser to carefully weigh the pros and cons of dipping into your retirement account for any reason.

 

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Once you’ve reviewed your credit, calculated how much you can afford, and have enough of a down payment, it’s time to get pre-approved for a mortgage. You might apply with several potential lenders and compare quotes.

 

In a preapproval, a lender checks your credit, verifies your income, and approves various documentation. They offer a maximum loan amount and interest rate for a period, such as 30 or 60 days, while you find potential homes.

 

This article originally appeared on QuickAndDirtyTips.com and was syndicated by MediaFeed.org.

 

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