When homes sell fast, buyers need to be ready to make an offer as soon as they have identified the one they want.
In July, the average time a home stayed on the market in the Washington area was just 12 days, according to multiple-listing-service data. While the pace of sales in August may slow a bit because of summer vacations and school year preparations, early fall usually picks up right after Labor Day with a new wave of competing buyers.
Thus, you will need to take financial steps to be ready to make a solid offer. Nationally, according to the National Association of Realtors, all-cash sales accounted for 22 percent of all purchases in June. Buyers need to be fully approved for a loan to compete against other qualified buyers, including cash buyers.
Getting ready for a mortgage approval is essential for two reasons. First, you need to know how much you can borrow and how that effects the price range of homes you can consider buying. Second, as mortgage rates fluctuate, you want to be ready to lock in a loan before interest rates rise.
Here are nine tips to prepare financially for the fall buying season:
1. Check your credit: Request your credit reports from all three credit-reporting bureaus at www.annualcreditreport.com. You are entitled to a free report from each bureau once a year. Look for errors that need correcting and check for negative items that could pull your score down. Borrowers with a credit score of 740 or higher will pay lower mortgage rates than someone with a lower score.
2. Evaluate your budget: Before you meet with a lender, you should develop a written budget with your income and expenses and write down your debts and your assets. Think about what you spend now on housing costs and what you would be comfortable spending monthly on your next place. Estimate your available funds for a deposit, a down payment and closing costs and identify sources for funds.
3. Consider a home-buyer education class: Free and inexpensive classes are available through most county governments and many nonprofit agencies to help buyers understand the buying process and ongoing responsibilities of homeowners.
4. Check eligibility for home-buyer assistance: Go to downpaymentresource.com to check for down-payment and closing-cost assistance and access to low-interest loans in your area.
5. Choose a lender: Get recommendations and interview a few lenders to find someone you feel comfortable with and can trust. A good lender should also function as an adviser for your home purchase.
6. Get your documents in order: You may be able to digitally upload most of the required documents for your loan application. Consult with your lender and continue to update your paperwork — you will need the most recent pay stubs and bank statements for your final loan approval.
7. Get preapproved for a loan program: Your lender can talk to you about various financing options and which suit your short- and long-term goals as well as your financial profile.
8. Move your cash into an accessible account: The funds you need for a deposit and for your down payment and closing costs should be in a liquid account so that you can write a check or transfer money as needed. You will need to keep all the documentation of your transactions for your lender’s review.
9. Do not take on new debt: While it is tempting to open an account at a home improvement store or buy a new car to go with your new place, keep in mind that any change in your financial circumstances could possibly even disqualify you for the mortgage. Lenders recheck your credit just before the closing and need to see your creditworthiness is the same — or better — than when you were preapproved for a loan.
Jon Coile, chairman of Rockville-based multiple-listing service Bright MLS (formerly MRIS) and president of Champion Realty in Annapolis, Md., writes occasional commentary on the Washington-area housing market.