Taylor Getler, Author at Financial Avenue

Many neighborhoods are bound to be packed with cars on Feb. 12, as families, friends and fans gather to watch the Super Bowl. But cars may line up around the block the next day for an entirely different reason — open houses.

Trading foam fingers for rubber cleaning gloves, homeowners across the country will get ready to list their homes for sale. The day after the Super Bowl is considered by many in the industry to be the unofficial start of the homebuying season.

Consider a market like Massachusetts, which has a strong sports culture and cold winter months. Kristin Coppola of South Shore Sotheby’s International Realty in Duxbury, Massachusetts, has explicitly recommended that sellers hold off listing until after the big game. “It’s the New England mentality,” she says, as locals are in “hibernation” while they focus on the football season. Once the game is over, however, all bets are off. “It’s like a madhouse.”

As the 2023 NFL season comes to an end and the homebuying season begins, use this guidance to shop like a pro.

Focus on costs and affordability

Thanks to interest rates that are higher than they were last year, home buyers are getting less for their dollar. Competition may not be as fierce as it was during pandemic highs, but many home shoppers are now contending with tightened budgets. Those financial constraints limit the number of homes buyers can afford in an already shallow pool of inventory.

You should understand the full costs of homeownership, as well as how to position yourself as an attractive borrower to lenders and sellers.

A stronger borrower profile = better rates

Before you even begin browsing online listings, take a long look at your own finances.

A good place to start is your credit score, as lenders will typically want to see a score of at least 620. The best mortgage rates are reserved for borrowers with scores of 740 or higher. A lower rate will free up more of your monthly payment to go toward the principal, meaning that you could afford a home with a higher sticker price.

One fast way to help your credit score is to request a free credit report and dispute any errors. The credit bureaus have up to 45 days to investigate and respond to your claims.

You’ll also want to consider your debt-to-income ratio, as this is one of the major elements that lenders consider when reviewing your loan application. Borrowers whose total debts account for more than 36% of their monthly income will find it difficult to qualify for the best rates.

Develop a realistic budget

The median home purchase price in December 2022 was $366,900, according to the National Association of Realtors. Beyond the price of the home, you’ll want to factor in the additional costs of homeownership. These include property taxes, utilities and homeowners insurance, as well as the general costs of maintaining a home, such as upgrading appliances or replacing the water heater. If you’re buying in a neighborhood with a homeowners association, factor in those fees as well. You’ll also need to account for closing costs, which are typically 2% to 6% of the loan amount.

Don’t stretch your budget beyond what you can safely afford; instead, turn to your list of criteria and start making cuts where possible. That ideal 36% debt-to-income ratio includes your home loan. Calculating your existing monthly debts can give you a sense of how much of your remaining income you can comfortably use for mortgage payments.

Get preapproved for a mortgage

Buyers “need to be prepared to hit the ground running” to take full advantage of the seasonal spike in available homes, says Coppola. New listings in her market tend to peter out by Memorial Day, when locals head to the beach. One way to prepare is to start reaching out to lenders to get preapproved for a mortgage.

Mortgage preapproval will benefit you in a number of ways during your home search. It gives you peace of mind by confirming that you can qualify for a loan; it can help inform your budget; and, when you’re ready to make an offer, it will demonstrate that you’re serious and motivated to buy.

“A preapproval letter sends a clear message to sellers that these are strong buyers,” says Jessica Schenkel of Sagan Harborside Sotheby’s International Realty in Swampscott, Massachusetts.

Shop around and apply for mortgage preapproval from multiple lenders. This allows you to compare rate offers, as well as any associated fees.

Build your winning team

“An important play is finding a Realtor who will represent your best interests in one of the biggest and most important purchases you will ever make,” says Schenkel. “Not everyone will be a perfect fit.” Your agent will be an informed insider resource who can help you understand your particular market, including the challenges and competition you may face and where to look for homes within your budget.

Taylor Getler writes for NerdWallet.

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As mortgage rates continue their stomach-turning rise and serious shoppers compete for a limited supply of homes, would-be home buyers may be struggling to make a successful offer before their mortgage preapproval letter expires.

According to Zillow, more than half of home buyers this year reported making two or more offers before closing on a home — and that’s only after finding one that meets their needs, which takes an average of eight weeks, according to the National Association of Realtors’ 2022 Home Buyers and Sellers Generational Trends Report. For some, the search lasts longer.

A typical letter is valid for 90 days, though that can vary by lender. This time-sensitive document from your lender tentatively estimates how much it is willing to lend you, and on what terms. It demonstrates to the home seller that your mortgage is likely secure, so the deal can close.

If your home search is outlasting your preapproval window but you’re committed to the hunt, you can relieve some pressure by renewing your preapproval with your lender. These tips will help you protect your mortgage preapproval and stay on top of your homebuying budget.

How to renew your mortgage preapproval

Keep your personal financial documentation on hand and get in touch with your lender before your mortgage preapproval window closes.

Confirm the letter’s expiration date

Your preapproval letter should either spell out the expiration date or list how many days the letter is valid (most likely 90 days or fewer). If there is any doubt, call or email your point of contact at the lender to confirm the date.

Contact your mortgage loan officer

Reach out to the mortgage loan officer listed on your letter and explain that you want to renew your preapproval. Since the lender already has your basic information, the re-application process shouldn’t take as long as when you initially applied for preapproval. According to Bank of America, it can take up to 10 business days to receive a new preapproval letter, so plan ahead. This way, you won’t experience a gap where you’re actively home shopping but haven’t been preapproved. This will also help ensure that the rate and total loan amount estimates you’re working with are timely and realistic.

Update your documentation

You’ll have to provide current versions of your preapproval documentation. This includes your most recent pay stubs and asset statements for your bank accounts, retirement accounts and brokerage accounts. If you’ve experienced a major life event that will impact your borrower profile, like a divorce, you’ll want to update your lender. Your credit score will also take a temporary dip, since this reassessment involves a hard credit pull.

Think of the process as a “refresh” instead of an “extension,” since the amount and terms of your preapproval will likely change with your new letter.

Consider a different kind of mortgage

Applying for a new preapproval letter comes with the opportunity to explore different kinds of loan options with your lender, says Sonu Mittal, head of mortgage at Citizens, based in Dallas. For example, adjustable-rate mortgages are becoming increasingly popular as borrowers bet on long-term rate trends. The rates for ARMs are typically lower during the introductory period and then change with the market.

Some lenders advertise loan programs that come with lower or temporarily suppressed rates. For example, New American Funding offers a “buydown loan” that allows borrowers to pay 1% or 2% less than the 30-year fixed rate for their first few years in the home, or a combination of those discounts.

If you choose to switch lenders, you’ll have to shop around again and start the application process over from scratch.

Reconsider the starter home

“If someone got a preapproval a couple of months ago, the probability of them being able to get it renewed is very high,” Mittal says. Still, Mittal says, even a borrower who has kept their finances in good shape could see their budget constrict with a new preapproval letter months later. Rising interest rates are making home loans more expensive, so borrowers renewing a preapproval may see a lower total mortgage amount for the same monthly payment. If you’re having a hard time finding a home within your preapproved budget, you may need to make some concessions.

“I feel like a lot of millennials are trying to make a move into the dream home from renting,” says Steve Ploetz, a Realtor with Century 21 Award in Carlsbad, California. Some home buyers may find that a smaller house, condo or property outside of a preferred neighborhood makes sense as a stepping stone to their real estate dreams. Limiting the scope of your search to what you can truly afford — instead of what ticks the most boxes on your wish list — may present more opportunities.

Check in with your lender often

It’s a mistake to think of a preapproval letter as a static document, Ploetz says. “We’re recommending that our clients touch base with their lender every other week,” he says, so that the borrower can get an updated perspective on what they qualify for and how rates are responding to recent changes in the market. Otherwise, Ploetz says, you risk working with outdated information and sabotaging your search.

If you want to level-up your home-shopping strategy, maintaining your mortgage preapproval is key. Staying in frequent contact with your lender and accounting for a changing budget can give you the tools to shop like a pro, even in a challenging market.