Potential homebuyers have been waiting for the frozen housing market to thaw since 2022, when high mortgage rates kept homeowners from selling out of fear of not being able to get low rates again on a new home. This resulted in a limited supply of houses on the market.
Find Out: 5 Cities Where Homes Will Be a Total Steal In Two Years
Try This: How To Start Investing In Real Estate – Even If You’re Not Rich
However, according to Redfin, the lock-in effect may be coming to an end in early 2025. The Fed recently lowered interest rates by 0.25 percentage points — the second cut of 2024 — which could lead to a slew of new homes flooding the market. Thus, this is a good time for potential homebuyers to get financially prepared. According to real estate experts, here’s how to prepare for buying a home.
Strengthen Your Credit Score
Your credit score plays a significant role in the mortgage rate and terms you’ll qualify for, according to Becky Pendergrass, a real estate agent at Benchmark Realty in Nashville.
She recommended you take the time now to pay down any outstanding debt, avoid taking on new debt and ensure 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 currently rent, according to Ryan Barone, co-founder and CEO of RentRedi. He said that many renters don’t realize that they can report on-time rent payments to the three major credit unions through certain rental management apps.
“This is the biggest monthly payment you make, and it can dramatically impact your credit score. A TransUnion study found that reporting 12 months of monthly, on-time rent payments can improve credit scores by up to 26 points, with 60% of renters even seeing improvements after the first month,” he said.
Be Aware: If Interest Rates Are Going Down, What Will Mortgage Rates Look Like in 2025?
Build Up Your Savings
And while everyone knows they will most likely need to save up for a down payment on a home, Pendergrass pointed out that you’ll need more cash on hand than just that. Closing costs, moving expenses, and potential repairs or upgrades on your new home can add up quickly.
“Start putting aside extra funds now, so you’re not caught off guard when the time comes,” she said.
Get Preapproved
You also don’t want to go into buying a home without a clear idea of what you can spend. A mortgage preapproval is more than just a formality. It shows sellers that you’re a serious buyer, and it gives you a clear idea of how much you can afford, Pendergrass said.
“With a likely increase in inventory, being preapproved can give you an edge in a competitive market,” she said.
Have a Clear Budget
As more homes become available, it might be tempting to stretch your budget for that dream home, but Pendergrass said it’s important to set a firm budget based on what you can comfortably afford, considering not just the mortgage, but also taxes, insurance and maintenance.
“Preparing now means you’ll be ready to make a confident offer when the right home comes along, without scrambling at the last minute,” she said. “The key is to be proactive and strategic, so when the market does open up, you’re in the best position to secure your ideal home.”
Speak With a Loan Officer
If you feel uncertain about any of the steps in the process, Rose Krieger, senior home loan specialist with Churchill Mortgage, said that you can clear up many of these by speaking with a loan officer in advance of purchasing a home.
“For example, if someone has credit issues and knows they need to work on their credit, a loan officer can help them decide which items on their credit report need attention and the steps to accomplish them in the shortest amount of time possible,” Krieger said.
Gather Your Paperwork
The lender is also going to need documentation, so it’s a good idea to gather your pay stubs, bank statements, W-2s and tax returns, Krieger said.
Prepare for a Bidding War
With a greater inventory of homes becoming available, Rinal Patel, a real estate agent and founder of We Buy Philly Home, pointed out that it’s more likely you’ll encounter more buyers.
“Hence, even with a much larger inventory, bidding wars may become the norm, especially amongst intending buyers who have put off their home ownership dreams for the future, patiently waiting for when the time would be right, when they would be guaranteed of lower mortgage payments,” she said.
The best way to prepare for that is to have a budget and be intentional about not going above it, she said.
“Know what you can afford, and never hesitate to walk away when you have been out bid by other intending buyers, because the truth is, there is only so much insurance low interest rates can offer you,” she explained.
Understand the Market You’re Entering
Also remember that there is not a single housing market but many small individual ones, often with varying conditions. The more you know about the specific market or markets you’re looking at, the better your chances, according to Justin Godur, a finance advisor, a real estate expert and the founder of Capital Max.
“Knowledge is power in a competitive housing market. I recommend subscribing to local real estate newsletters and attending community meetings to stay informed about the neighborhoods you’re interested in. This isn’t just about knowing the prices but understanding why certain areas command higher valuations and how these dynamics might shift 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 homebuyers can provide insights and opportunities that aren’t available through listings alone. These relationships can be crucial in getting the inside scoop on upcoming properties or neighborhoods primed for growth,” he said.
By taking these steps, you not only will prepare to enter the market but also will be positioned to act swiftly and confidently when the right opportunity presents itself.
More From GOBankingRates
- 9 Moves For Building Lasting Wealth: What Smart Americans Are Doing Right
- The Trump Economy Begins: 4 Money Moves Retirees Should Make Before Inauguration Day
- 3 Reasons Retired Boomers Shouldn't Give Their Kids a Living Inheritance
- 5 Side Hustles That Can Earn You an Extra $1,000 Before 2025
This article originally appeared on GOBankingRates.com: Housing Market 2025: The Floodgates May Open, So How Can You Prepare To Buy a Home?
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
