It looks like it’s going to be another competitive year for homebuyers in 2022.
While the market isn’t expected to be as frenzied as this past summer, prices are still predicted to rise. Zillow is forecasting 11% home value growth in 2022, down from a projected 19.5% in 2021.
Plus, year-over-year inventory is still lower, and concern about rising mortgage rates is fueling competition in the marketplace, said Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors.
“If you want to get in next year or before interest rates rise, get your ducks in a row now,” she said.
To be sure, mortgage rates are expected to increase in the coming year.
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However, if you are looking to buy in the next six months to nine months, any increases shouldn’t be significant, said Kevin Parker, vice president of field mortgage at Navy Federal Credit Union.
“Rates are still historically extremely low and it is still a great time to buy,” he said. “If someone needs more time, I don’t think they are going to have a big difference in pricing.”
Here’s what you can do now to put yourself in the best position to find your new home in the new year.
Pay down debt
Lenders will look at your debt-to-income ratio, which is the amount of debt relative to your income, when determining your loan. If you have debt, try to pay it down before you start house hunting, Lautz suggested.
Consider using any year-end bonus money or cash gifts to pay it off. If you don’t have debt, put that cash into savings to help with your down payment.
Check your credit
Your credit score is another important factor in getting a mortgage and the type of loan you’ll get. It also impacts the interest rate you’ll receive and potentially how much money you need for a down payment.
By checking your credit score ahead of time, you’ll know whether you’ll need to make any changes to try to increase that number.
Also, get a copy of your credit report to check for any errors or unpaid bills, which may also affect your credit score. Consumers can get their credit report up to once a week for free from the nation’s three largest credit reporting firms — Equifax, Experian and TransUnion — through April 2022.
Get a realtor
Look for a real estate agent who is knowledgeable about your market, suggests Zillow senior economist Jeff Tucker.
“They will be able to provide insight on the granular conditions in neighborhoods and cities you are searching in,” he said.
Contact a mortgage lender
Reach out to a lender as soon as possible, at least to ask questions and find out what they need from you in order to preapprove a mortgage, Parker said.
“We like members to start off with an understanding of the process,” he said.
You can use online calculators to figure out what you can afford and whether it makes sense to buy or rent. You’ll also want to know how much money you’ll need to bring to closing, since there are fees — known as closing costs — that are due in addition to your down payment.
You can also get preapproved for a mortgage before you start house hunting, since you’ll need it before you submit a contract for a house.
Explore low down-payment options
First-time homebuyers may not be aware that there are options for low down payments, Lautz said.
FHA loans, for instance, offer down payments as low as 3.5%. Check out the U.S. Department of Housing and Urban Development’s website, HUD.gov, and other local resources to see what may be available to you.
“Doing your research beforehand can help you,” Lautz said.
Enter the market now
Many people put their house shopping on hold during the holidays or simply hunker down in the winter. That means this may be a good opportunity to enter the market, Lautz said.
Buyers traditionally don’t jump back into the market until March, although the spring housing season has been starting earlier and earlier each year, she noted.
In fact, if you decide to wait until the new year, things may heat up pretty quickly, Tucker added.
“The competitive nature comes back pretty quickly after the holidays are in the rearview mirror,” he said.
“That is why this is a great time to prepare to be able to move quickly as the home shopping reason ramps up.”
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