Potential Homebuyers: How To Adjust Your Budget Accordingly for a 2023 Home Value Surge of Nearly 6%
Written by
Dawn Allcot
Edited by
Nicholas Morine
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
If you are in the market for a new home this season, the market may not be in your favor. High interest rates coupled with increasing home prices could make it harder to get into the home you want. Home values are expected to rise 5.8% by the end of 2023, according to Zillow’s latest “Home Value and Sales Forecast.” That’s an upward revision from last month’s prediction of 5.5% growth. The report prior to that had homes appreciating by 5% by year end.
The latest report also predicts home values will rise by 6.5% between July 2023 and July 2024. The real estate listing site also predicts existing home sales of 4.2 million, a 17% decline from last year.
High interest rates are creating a limited inventory, since existing homeowners are hesitant to move and pay more for a new mortgage. Reducing inventory is limiting sales, but not enough to reduce prices, since there are plenty of homebuyers shopping for the houses that are on the market.
If homeownership is in your plans for late 2023, there are still ways to find your dream home if you can adjust your expectations and your budget.
Preparation Is Key
First, go into the home search knowing exactly what you can afford. That means taking time to pre-qualify for mortgages, so that you know the interest rate you can expect. Use a mortgage calculator to determine your monthly payments, including principal, interest, taxes, and insurance.
In general, you don’t want to spend more than 28% of your income on your mortgage payments. However, in some high-cost states, like California, you may need to bend this rule to get the house you want. Lenders want to see no more than 36% of your income, in total, go toward debt.
So if you have to pay more for housing, you might want to take time to pay down high-interest debt or even pay off your car loan or lease before applying for a mortgage. Another option is to put down a larger down payment to reduce your monthly payments.
Most mortgages call for 20% down, but first-time homebuyers and veterans can find programs allowing 3% to 5% down. You should only take advantage of one of these programs if you can afford the monthly payments.
Review Your Finances
There might be ways to reduce your living costs to afford the home you want. But if you enjoy vacations, shows, or dining out, consider if you really want to give up these things in favor of a mortgage payment.
The best way to make your mortgage more affordable is to pay down existing debt in order to free up cash. As a result, you may also secure a lower mortgage rate, so it’s a win-win.
Shop Around To Secure the Best Rate
Compare lenders to be sure you’re securing the best rate. You might consider buying discount points to “buy down” your interest rate. Each point you buy shaves 0.25% off your mortgage interest rate, which can save you thousands of dollars over the life of the loan.
If you have the extra money to spend at closing, do the math to determine if you’d be better off increasing your down payment or buying points.
Get Pre-Approved
When you’re ready to start home shopping, get a mortgage pre-approval from your lender of choice first. In a seller’s market, you want to give yourself the best odds that the seller will accept your offer. Sellers will take offers from prospective buyers with pre-approval paperwork in hand more seriously, and it can make the closing process go more smoothly.
Act Quickly — But Don’t Skip Crucial Steps
When you find the home you want that’s in your price range, you want to be ready to pounce with all your paperwork in place. But don’t make common homebuyer mistakes like skipping the home inspection or settling for a home that doesn’t meet your family’s needs just because it’s in a desirable location.
Location is important but for your primary residence, factors like the number of bedrooms, size of the rooms, and overall layout of the home matter just as much.
Don’t Be Afraid To Wait
If you can’t find a home that fits your budget or adjust your budget to afford the home you want, consider waiting until the market cools. A survey by Clever Real Estate found that 93% of homebuyers in 2023 regretted their decision.
A home purchase is a major decision and you want to feel good about it, not have to change your lifestyle or make significant financial sacrifices to pay your mortgage.
More From GOBankingRates
