Potential homebuyers have been waiting for the frozen real estate market to ease since 2022. High mortgage rates kept homeowners from selling at the time because they feared they wouldn’t get the same low interest rates on a new home, limiting supply.
However, according to Redfin, the lock-in effect could end in early 2025, as the Fed has indicated it may cut interest rates by September of this year, which could cause a flood of new homes to flood the market.
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For people looking to buy a home, this is a good time to start securing your finances in advance. Here’s how to prepare for a home purchase, according to real estate experts.
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Improve your credit rating
According to Becky Pendergrass, a real estate agent with Benchmark Realty in Nashville, your credit score plays a crucial role in determining the mortgage rate and terms you qualify for.
She recommends taking the time now to pay off any outstanding debt, avoid taking on new debt and make sure your credit report is accurate. “A higher credit score can save you thousands over the life of your mortgage,” she said.
You can build credit even if you’re currently renting, according to Ryan Barone, co-founder and CEO of RentRedi. He said many renters don’t know they can report on-time rent payments to the three major credit unions through certain rental management apps.
“This is the largest monthly payment you make, and it can significantly impact your credit score. A study by TransUnion found that reporting on-time monthly rent payments for 12 months can improve credit scores by as much as 26 points, with 60% of renters seeing improvements after just the first month,” he said.
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Build your savings
And while everyone knows they’ll most likely need to save for a down payment on a home, Pendergrass pointed out that you’ll need to have more cash on hand than just that. Closing costs, moving expenses, and potential repairs or upgrades to your new home can add up quickly.
“Start putting extra money aside now so you won’t be surprised when the time comes,” she said.
Get pre-approved
You also shouldn’t jump into the home buying process without having a clear idea of how much you can spend. A preliminary mortgage endorsement is more than just a formality. It shows sellers that you’re a serious buyer and gives you a clear idea of how much you can afford, Pendergrass said.
“With a likely increase in inventory, pre-approval can give you an advantage in a competitive market,” she said.
Set a clear budget
With more and more homes coming up for sale, it’s tempting to spend more money on that dream home. But Pendergrass recommends setting a firm budget based on what you can comfortably afford, taking into account not only the mortgage but also taxes, insurance and maintenance.
“Preparing now will allow you to make a confident offer when the right home comes along, without having to scramble at the last minute,” she said. “The key is to be proactive and strategic so that when the market opens, you’re in the best position to secure your dream home.”
Talk to a loan officer
If you’re unsure about any of the steps in the process, you can clear up many of those uncertainties by speaking with a loan officer before you purchase a home, according to Rose Krieger, a senior mortgage specialist at Churchill Mortgage.
“For example, if someone is having credit problems and knows they need to work on their credit score, a loan officer can help them identify which items on their credit report need attention and outline the steps to take to get them addressed in the shortest time possible,” Krieger said.
Collect your documents
The lender will also require documentation, so it’s a good idea to gather your pay stubs, bank statements, W-2 forms and tax returns, Krieger said.
Prepare for a bidding war
Rinal Patel, real estate agent and founder of We Buy Philly Home, pointed out that as the supply of available homes increases, there is a greater chance of meeting more buyers.
“That’s why bidding wars could become the norm even with a much larger supply, especially among prospective buyers who have postponed their dream of homeownership and are patiently waiting for the right time when they are guaranteed lower mortgage payments,” she said.
The best way to prepare is to set a budget and be careful not to exceed it, she says.
“Know what you can afford and never hesitate to walk away if other prospective buyers have outbid you, because the truth is that low interest rates can only offer you so much protection,” she explained.
Understand the market you are entering
Also, keep in mind that there isn’t just one real estate market, but many small individual markets that often have different conditions. The more you know about the specific market or markets you’re considering, the better your chances, says Justin Godur, financial advisor, real estate expert and founder of Capital Max.
“Knowledge is power in a competitive real estate market. I recommend subscribing to local real estate newsletters and attending community meetings to stay informed about the neighborhoods you’re interested in. It’s not just about knowing the prices, but also understanding why certain areas are commanding higher prices and how that dynamic might change with a flood of new listings.”
Build relationships with key stakeholders
Finally, Godur said, don’t underestimate the power of relationships. “Connecting with local real estate agents, brokers and even other home buyers can provide insights and opportunities not available through listings alone. These relationships can be critical to getting inside information about prospective properties or neighborhoods with potential for growth,” he said.
By taking these steps, you will not only prepare to enter the market, but you will also be able to act quickly and confidently when the right opportunity arises.
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This article originally appeared on GOBankingRates.com: The floodgates on the housing market could open by 2025 – Here’s how to prepare to buy a home
