GOLDEN VALLEY, Minn. - It is the busiest time of year for home buyers and sellers in the Twin Cities and these days, it’s a competitive market, capable of breaking hearts.
Locally, it’s not uncommon for buyers to find the home of their dreams, only to have it whisked away in a battle of multiple offers. Aggressive first-time home buyers are also going after sleeper pockets of the metro now in high demand.
Bob Strandell, a Senior Loan Officer with Bell Bank stopped by the KARE 11 News at 4 to share his insights about the current market. Here are his top tips to buyers:
Where to Buy? Beware of high demand areas in the Twin Cities
While location is a personal preference, you should be aware of demand in the metro so you can prepare yourself. For example, Richfield and Crystal are high demand areas of the Twin Cities where you may run into more competition.
Mortgage rates are on the rise
Certainly, mortgage rates are coming off historical lows, but they are on the rise. If rates continue to climb, there are ways for homebuyers to offset those costs. For example, consider lowering the interest rate by paying a fee to the lender up-front, which is known as buying down the interest rate. Or, go with an adjustable-rate mortgage, which has a low, fixed-interest rate for a few years, typically five or 10, then adjusts to a higher rate.
Another option? Ask the seller to pay your closing costs. That can free up more cash.
Know your housing ratio
A standard rule for lenders is that your monthly housing payment (principal, interest, taxes and insurance) should not take up more than 28 percent of your income before taxes. This debt-to-income ratio is called the "housing ratio". If you are buying your first or second home, make sure you keep this important equation handy.
Get your game face on!
In a hot buying market, sellers don’t want to mess with buyers who aren’t “buttoned-up”. Essentially that means getting a preapproval letter from your lender BEFORE making an offer on a home. The letter verifies you have been approved for a loan and how much you have been approved for.
• Applying for Credit
After you get a contract to buy your house, you might be tempted to apply for a new credit card to get a discount on all that furniture you’re eyeing. Be careful. Doing so could change your credit score and impact your rate lock and/or fees associated with closing on the house. This is not a time to apply for credit, which includes car loans, credit cards, utility bills, cell phone bills or any other form of credit.
• Close or Dispute Credit
This is not the time to close out or dispute any credit cards. If you have any accounts in dispute, the mortgage lender cannot run automated underwriting and they must pause your loan file until your accounts are taken out of dispute. Closing a credit card can hurt your credit score.
• Moving Money Around
Let’s say your Aunt Sally wants to help you with your new home and is giving you $5,000. It might be worth waiting until AFTER closing to accept the gift. Here’s why:
Placing cash deposits in your bank account independent of your normal income i.e. your normal job can be problematic for getting a mortgage because these monies cannot be identified. Essentially the lender could become leery of suspicious activity or your ability to manage the mortgage on your own.
• Switching Jobs
Mortgage lenders typically require you have your job for 30 days before closing. Some lenders will also want a pay stub, an offer letter and verification of employment prior to closing on the home. Word to the wise: Close on the house with your current job, if possible.