When you start to take a closer look at the housing market, it’s also important to take a look at your own power as a buyer. Simply put, there are a host of different criteria that can affect not just the kind of price that you might get on a home, but also on what kind of home loan deals you are expected to get.
Here, we’re going to look at a few of the factors that can affect your home buying power and what you might be able to do to increase it.
Your Credit Rating
One of the largest factors of influence that is going to determine what kind of loan is available to you is that of your own credit rating. If you have not done so, already, then it’s time to take a look at one of the credit reporting sites. You should be able to get a free report from one of the big three credit monitoring companies at least once a year. From here, you can get not only a look at your current score but a breakdown of your credit history.
This history will note every “black mark” on your record, from loans defaulted to late payments to even early repayments before the deadline of the loan. There are various ways that you can push to improve your credit rating, but keeping current with existing loans is the key factor. You should, however, also make sure you get in contact with any credits behind black marks that should not rightfully be there. These companies will often file erroneous reports and it’s your job to root them out and erase them when you see them.
Aside from influencing your credit rating, if you have any existing debts, it’s going to mean that home loan providers aren’t going to look at you as the very best prospective borrower. If you have several open debts, then you should work on a debt reduction strategy to close them as soon as you can. This is not the same as having an open line of credit, such as a credit card or an overdraft, however. For those, you instead want to look more closely at your credit utilization rate. This is how deep you have done into using your existing line of credit. If you’re deep into it, you will have a high credit utilization rate, which lenders might take as a sign to not offer you the very best loans that they might, otherwise. Having open lines of credit with a low utilization rate has the opposite effect, it shows that you are reliable and trustworthy with your credit.
Your Down Payment
When you take out any loan to buy an expensive item, you are almost always going to be asked for a down payment. This is effectively a form of security on the loan. You show that you are willing and able to contribute the cash upfront, making it clear that you’re more likely to be stable in keeping up with loan repayments in the future. The down payment is then also taken off the total of the loan. In general, the bigger the down payment that you are able to put down, the better it is for your loan terms. It usually means that you can access lower interest rates, lower monthly payments, and reduced costs in general. Of course, having to save a larger downpayment also means having to wait a longer time before you’re able to get that new home.
The Loans on Offer
The availability of different home loans to you will depend partly on the different factors named here. However, it will also depend on what the lenders around you are willing to offer. There are five major types of mortgages: there are conventional mortgages that aren’t insured by the federal government. There are government-insured mortgages (usually made available to those in certain occupations or that meet specific financial criteria). There are adjustable-rate mortgages that offer big savings upfront but higher payments down the line. There are fixed-rate mortgages that are more predictable but typically more costly up-front. Lastly, there are jumbo mortgages that are much larger than the average mortgage.
There are a few more niche kinds of mortgages, but the availability of all of these depends on what lenders are offering. You can’t take out loans that they don’t offer, so get an idea of what kind of loan you need and make sure you choose a lender that offers it.
The lender is going to do more than look at your credit, your current accounts, and how much money that you’re offering up front. They are also going to take a close look at your income. After all, that is going to be the key determining factor in how much you are able to pay each month. Self-employee workers need to make sure they are able to provide plenty of evidence for how much money they have been making over the past few years to offer proof that they can reliably pay. Otherwise, the lender is likely to ask for copies of pay stubs as proof of income.
Your access to the most financially advantageous of loans doesn’t depend solely on your income. It also depends on your job, as well. That might sound like one and the same, but specific kinds of works such as a government employee can gain access to advantageous loans that others might not able to. If you work in the public sector or any other socially valued position (such as teaching or nursing) then you might find there are additional bursaries, grants, and special loans available to you.
The Home You’re Aiming For
Simply put, if you find that you don’t have the buying power to achieve your dream home, then you might want to rethink what kind of home you’re moving into. It’s a good idea to have a list of both needs and wants and to rank them both by their priority. This way, you have a better idea of not only what is most important to you, but also what you can sacrifice if it turns out that your dream home is way about your budget. You might also want to look at specific markets if you’re a first-time buyer with not a lot of equity to free up from previous homes. There are areas outlined as transitional areas, for instance, that make it relatively cheap to get that first foot on the property ladder.
The Local Market
Before you go making any offers on a home, even if you want to act quickly, you should take a closer look at the sales records for the local market. If you’re working with a real estate agent, most of them aren’t going to let you get too far into negotiating without this vital info. You can see how the value has been tracking in the area over the past years and you may even be able to see prices for properties that have a similar footprint to the one that you are buying. Of course, while this can help offer some negotiating wiggle room, the demand for the current home will always trump that, so don’t rely too heavily on these records.
Another factor worth considering is how much dirt you have on the home that you’re looking at. Simply put, it’s important to step onto the property ladder with all the information that you could need. The more informed you are on a property, the more aware you can get about specific issues that might be able to help you improve your bargaining position. It’s worth carrying out a survey simply to know what you’re getting into. However, it might also be able to put some pressure on the negotiations to help you get the better deal that you’re looking for. Of course, many sellers will simply fork the bill and make those fixes themselves, but it’s still worth knowing.
The Seller’s Financial Position
This isn’t something that you will always (or ever) be able to find out, but if you can get any indications that the home seller is not doing great, financially, then this offers you some wiggle room to nudge the price down. Simply put, those who are dependent on the money from a home sale and need it quickly are trying to get the house sold as quickly as possible. Whether or not you can take advantage of this also depends on how much demand there is for the home at the moment. If you smell blood in the water, however, and there don’t seem to be many buyers, it can be a really big advantage.
There’s no guarantee that any of the tips above will be able to offer a major transformation when it comes to your buying power. However, there’s definitely wiggle room to help you get a better deal if you put some pressure on the right levers.