Today’s housing market can look like a dream killer.
Rising mortgage rates, high house prices and a shortage of properties for sale pack a one-two-three punch.
If you’ve been kicked out of too many deals and need some downtime, here’s how to regroup and keep the homeownership dream alive.
Give yourself a break
Given rising home prices and interest rates, the monthly mortgage payment for a median-priced single-family home with a 10% down payment has jumped about $800 since January, according to a June news release. 2022 from the National Association of Realtors.
It is enormous.
There’s nothing wrong with taking a break if you’re so exhausted that you can’t think clearly or if you’re just overpriced.
“If this isn’t for you…walk away and give yourself some breathing room,” says Catalina Franco-Cicero, certified financial planner at Tobias Financial Advisors in Plantation, Florida. “It’s OK to do that.”
But stepping back doesn’t mean giving up.
“One thing we tell people, whatever their goal, is that there’s a big difference between ‘no’ and ‘not yet,'” says Nathaniel Moore, Certified Financial Planner and President of Agape Planning Partners in Fresno, California.
See: For the first time ever, the average rent in Manhattan exceeds $5,000 a month
Strengthen your finances
Think of the break as an opportunity to improve your finances even further.
Budget like a landlord
Use a mortgage calculator to estimate a monthly mortgage payment, including estimated property taxes and home insurance. Then add utilities plus 20% of the monthly mortgage for maintenance and unscheduled repairs, Moore suggests. Subtract your rent payment from this amount and set aside the rest in a high-yield savings account.
“That way if and when you can get into the house, you don’t get sticker shock or you’re not house rich and money poor because you didn’t consider others. expenses,” Moore says.
He compares the transition to a relay race.
“You want a smooth handover from ‘tenant you’ to ‘owner you’. If you’re not ready to come into that house and pay the incidentals of living, that’s when the stick fumbles and falls,” he says. “You want to get to where the renter is running at the same speed as the owner, so that when the baton is passed, the transition is smooth.”
When you’re ready to buy, you can add that extra money you’ve set aside to your down payment, which will help you make stronger deals and may qualify you for better ones. mortgage rates.
“No one can really predict interest rates or inflation or the rate of home appreciation in a relatively short period of time,” Eric Lefkowitz, president and chief operating officer, said via email. Motto Mortgage Mint in San Diego. “But we can be sure buyers should save for solid down payment options. This will allow them to get the best interest rate available when the time comes.
Lily: ‘Scary times’: Builders are cutting home prices and slowing construction as buyers pull back, survey finds
Pay off the debt
Paying off credit cards and other debts will improve two measures: your credit score and your debt to income ratio, or DTI. Both are key factors lenders consider when deciding if you qualify and at what rate.
A good DTI – the percentage of gross monthly income spent on debt – is typically less than 36%. The lower, the better.
Your credit score is based in part on credit utilization, the percentage of available credit used. Reducing your debt will reduce credit use and improve your score. Meanwhile, continue to make on-time payments to preserve good credit.
“It will give you a better mortgage rate and more options,” says Deb Gillard, realtor at RE/MAX Venture in Owatonna, Minnesota.
Avoid big optional expenses
Resist the temptation to vent your frustration by spending sprees, whether it’s topping up a credit card balance or buying a new car when the old one is enough.
“That’s the last thing you want to do when you take that break,” Gillard says.
Another incentive may be to move to a nicer apartment. But stay put if you can, advises realtor Peggy Pratt, who leads the Pratt Properties team at Century 21 North East in the Boston area. Paying the security deposit and other moving expenses could reduce savings for a down payment.
Reevaluate your wants and needs
Now is a good time to look at the bigger picture.
“People need to do some soul-searching to say, ‘What am I looking for in a house? ‘” Moore said.
Given house prices and mortgage rates, you may need to adjust your filters. You may need to buy houses in a different neighborhood or buy something smaller than originally planned. If the goal is to buy a departure housebuild equity and upgrade in a few years, then that flexibility can pay off.
“Homeownership is a step-by-step opportunity,” Lefkowitz said. “You don’t commit to staying in a house forever.”
If you could work elsewhere, another option you might consider is moving to a cheaper housing market, Franco-Cicero says. It’s a big decision. Taking a break can give you time to research the quality of life and cost of living in other places and consider whether you want to live elsewhere.
See: ‘Bargains for the bold:’ How the rest of 2022 could unfold for hopeful homebuyers
Stay in touch with your agent, lender
In addition to refining finances and reassessing goals, stay in touch with experts you trust who can monitor the market and bring you back when you’re ready, Lefkowitz said.
“That includes a strong realtor and mortgage professional,” he said. “Together, this partnership can keep buyers’ interests in mind and be ready to pounce on a great property when it becomes available.”
Let them know if you can make a larger down payment, for example. Keep your agent informed of when you might be ready to return to the market and what types of homes and areas you are ready to consider.
Pratt says she advises clients to keep expectations realistic and not give up.
“Hang on,” she said. “Something will happen.”
More from NerdWallet
Barbara Marquand writes for NerdWallet. Email: [email protected] Twitter: @barbaramarquand.