Rates May Drop in 2024; Get Ready Now

Future homeowners rejoiced over the financial reports this week. The Fed expects to lower interest rates throughout 2024, indicating a significant chance that home purchase rates will drop during the year.

The good news? Your purchasing power increases. The not-so-great news? Markets will flood with buyers who have been waiting months for rate drops.

To ensure that you are ready when you find that perfect home, take the following steps:

• Get your credit report in order. Make sure that it is clean with no outstanding charges or descrepancies. Refrain from adding new accounts. If you need help, Freddie Mac has a great resource for understanding credit here. 
• Find a lender. Your REALTOR® can point you to a local lender that can review the different types of loans available.
• Prepare for the upfront costs of making a home purchase.

Earnest Money: A Gesture of Commitment

When you decide to purchase a home, one of the initial steps is to provide earnest money, a deposit that demonstrates your serious intent to buy the property. Earnest money is typically paid when you submit an offer on a home, and it is held in escrow until the sale is finalized. The amount varies but is usually around 1-3% of the home's purchase price.

While the earnest money is part of the total payment, it is not an additional cost; rather, it is a portion of your down payment or closing costs. If the sale falls through due to reasons outlined in the contract, earnest money is usually refunded. However, if the buyer backs out without a valid reason, the seller may keep the earnest money.

Down Payment: Investing in Your Future Home

The down payment is a substantial upfront cost and is a percentage of the home's purchase price. While the traditional standard is 20%, many lenders offer options for lower down payments, especially for first-time homebuyers. Government-backed loans, such as FHA loans, may require a down payment as low as 3.5%.

Saving for a down payment is a critical aspect of preparing for homeownership. A larger down payment often results in lower monthly mortgage payments and, in some cases, may help secure a better interest rate. It's essential to carefully consider your financial situation and find a balance between a comfortable down payment and ensuring you have sufficient funds for other homeownership expenses.

Closing Costs: The Final Hurdle

Closing costs encompass a variety of fees associated with the finalization of the home purchase. These fees include appraisal fees, title insurance, attorney fees, and more. Closing costs typically range from 2% to 5% of the home's purchase price. It's crucial to factor in closing costs when budgeting for your home purchase. While some costs are fixed, others can be negotiated. Working with a knowledgeable real estate agent and mortgage lender can help you understand and navigate these costs.

Remember, the key to a successful home purchase is preparation. By staying informed, working with professionals, and carefully managing your finances, you can embark on your homeownership journey with confidence and financial stability.