4 Things to Know: An Expert’s Guide to Preparing for Homeownership

These days, it’s hard to keep up on interest rate news. That often means it can be tough to tell how a fluctuating market could play into your bigger plans, like buying a home. But fear not!  To help navigate the current landscape, we sat down with one of our Loan Officers, Betsy Cavanaugh, who has been originating mortgages since 1989. Besty shared valuable insights on the market and the steps you can take now to be ready for homeownership.  

The National Association of Realtors predicts a 13.5% increase from 4.1 million to 4.71 million in existing-home sales in 2024[1]. Given the level of demand, buyers need to prepare for the home buying and selling market. Here are four steps to take now that can help.

Step 1: Determine if you’re ready to buy

Buying a home is often the single biggest financial investment of your life. So, it’s worth taking your time to make sure you’re ready. To start, I would run a rent versus buy scenario,” said Cavanaugh. “That includes looking at the expenses that are in your current monthly budget, and then running a scenario on what your new expenses are estimated to look like when purchasing a home in your price range.”

Don’t forget to consider the appreciation on a similar house if you decide to wait to buy a year or more from now. “We’re not likely to see depreciation of home prices,” said Cavanaugh. “Focus on the bigger picture - housing costs will have a larger impact than interest rates.”

Step 2: Do your mortgage research

You’ll want to do your research every step of the way to ensure that you’re assembling the right team for your needs. Look at online reviews for mortgage companies and loan officers or, if you’re already aligned with a real estate agent, ask for recommendations from them. "It is important to assemble a lending and real estate team that has a local presence in your market.  In a competitive offer situation, it can mean the difference between your offer being selected over another one," said Cavanaugh.  

During the mortgage shopping phase, keep in mind that a lower interest rate doesn’t necessarily mean that mortgage company will provide the best experience for you. Instead, consider the overall picture when it comes to what a mortgage company should provide — like meeting deadlines and providing a smooth and anxiety-free process for everyone involved — both now and down the road. For example, “at Old National we believe that your journey doesn't end at closing," said Cavanaugh. "We're committed to providing you with exceptional banking services that support your financial goals, both for today and in the future.” 

Step 3: Prepare your finances for homebuying

Cavanaugh suggests a four-pronged approach for your finances when heading into a home-buying scenario. 

1. Think about your financial budget and payment goals. Start thinking about what you want your mortgage payment to be, then factor in any increased expenses that come with owning a home, like a potential increase in utility costs. “It’s always important for people considering homeownership to look at what the maximum payment is that they want to afford,” she said. “That’s not necessarily what you can afford — which might not be a comfortable limit for you — but what you want to afford.”
    
2. Contact a loan officer. You don’t have to have an exact house in mind to benefit from the advice and guidance of a loan officer. This person will be integral in helping you determine if your original budget and payment goals align with your fiscal abilities. They’ll take your original budgeted price and help you put a purchasing plan into place that includes fees you might not have considered like taxes, homeowner’s insurance, closing costs and potential private mortgage insurance, for example.
    
3. Get your credit report. With your home buying path developed, get a copy of your credit score and credit report. “Your credit score is important in the pricing of the loan, and sometimes in terms of what programs you can qualify for,” said Cavanaugh. There are free credit report services — like www.annualcreditreport.com — that provide you with one free report per credit bureau per year.
   
   
4. Lower your debt and/or increase your credit score. If your credit report brought to light outstanding credit issues, now is the time to resolve them. For example, “a large part of your credit score is the utilization rate of credit available,” said Cavanaugh. “Look at those credit balances in correlation with high credit limits, and make sure they are at or below 40% utilization. If you can do that, you’ll improve your credit score, which could then impact the interest rates you’re offered.” When working on your credit, remember that now is not the time to run up any credit card balances or open new lines of credit. That’s because “we’ll run a credit report at the time of application, and then another soft inquiry to find any significant balance deviations from what was pulled on the first credit report before closing,” said Cavanaugh. “If you only had a $1,000 balance for the first pull, and then you went out and bought $5,000 worth of home stuff, that can impact your credit score, as well as your ability to qualify for a loan.” 

Step 4: Prepare for your down payment

Some traditional ways to cover a down payment include using your own savings or gifted funds from a family member, but there may be other down payment options, depending on where you live and other lifestyle factors. Again, connecting with the right loan officer can help you when it comes to securing your down payment. It’s never too early to start the conversation with a loan officer either, even if you’re not looking to actually buy for a year or more out. “The loan officer doesn’t have to pull your credit report to help with the planning process,” said Cavanaugh. “The right loan officer makes a world of difference. Look for someone who shares your financial goals, helps you stick to a budget, and really listens to your needs.”

When it comes to down payment options, "there are a lot of differences between states, counties and cities in terms of different down payment assistance programs,” said Cavanaugh. “This is where working with a local loan officer can help. Many areas have different income restrictions, and other restrictions, that need to be adhered to, and your loan officer can help direct and investigate these. Assistance programs aren’t a one-size-fits-all thing. There are hundreds of programs, so it’s essential to partner with someone who can help you weed through them and find the best one for you.”

Buying a home is an incredibly personal process, but with the right team in place, you can rest assured that your finances will be intact when you come through on the other side. Check out Old National’s online mortgage resources for any additional questions, contact a local lender or stop by your local branch to meet in person.

[1] https://www.nar.realtor/newsroom/nar-forecasts-4-71-million-existing-home-sales-improved-outlook-for-home-buyers-in-2024.  0224-237