Here are top-ranked financial advisers' tips on buying a home when the market is cooling.

Oct 27, 2022


Becoming a homeowner can be challenging enough under good circumstances.

Add in higher mortgage rates, elevated home prices and unrelenting high inflation -- i.e., the current home-buying environment -- and it may feel decidedly unattainable.

The average rate on a 30-year fixed-rate mortgage has been trending above 7% for most of October, more than double the 3.3% heading into 2022, according to Mortgage News Daily. Meanwhile, the median list price for a home in the U.S. was $427,000 last month, 13.9% more than a year ago,'s latest monthly report shows.

However, buyers are generally gaining ground as the demand for homes continues to decline. According to, median home prices have been falling monthly since reaching an all-time high in June at $449,000 due to higher interest rates.

While it's impossible know for certain where home prices and mortgage rates will go in the months and years ahead, there are things you can do to ensure that you're financially ready to enter the market, now or in the future.

Here are some tips that may help you get ready.

Know how much home you can afford

Experts suggest that the first thing you should do is determine how much home your budget can afford. This involves having a solid understanding of your current financial situation.

"Understand your current budget ... what are your expenses, how's your spending, would you need to make changes," said certified financial planner Sandy Higgins, senior wealth advisor with Capstone Financial Advisors. The firm was located in Downers Grove Illinois and ranked No. CNBC Financial Advisor 100 ranking, 77.

While the purchase of a house is a single transaction, affordability is largely about monthly mortgage payments.

"Think about not spending more than 25%-28% of your gross monthly earnings on your payment, taxes included," stated CFP Dean Karrash from BLB B Advisors, Montgomeryville, Pennsylvania. The firm was ranked No. CNBC's FA 100 ranking ranked the firm No.87.

There are usually additional costs associated with home-buying transactions, such as mortgage fees or title search price. These one-time expenses can add up to thousands of dollars.

Be aware of ongoing costs, such as maintenance and repairs, that homeowners incur.

Karrash suggested that it was important to not be "house rich and cash poor." You'll be surprised at how many things you are unable to do, such as buy a new vehicle or take a vacation.

Improve your credit score

You might already be aware that the interest rate on many loans is affected by your credit score. A Zillow analysis revealed that home buyers with lower credit scores might pay more for a 30-year fixed interest rate mortgage (based on a property price of $354,200).

Higgins said, "Look at what your credit score is and decide if you can make improvements."

The best rates for mortgages are usually available to people with scores of 740 and above. You should be aware, however that scores obtained online for free (such as VantageScore), are often not what lenders use to approve your loan application.

Assess your credit score, and make suggestions for improvement.

Sandy Higgins

Capstone Financial Advisors, a senior wealth advisor

Mortgage lenders will pull your credit score from Equifax, Experian, and TransUnion. However, this FICO score is different than an education score.

However, good financial habits such as paying your bills on-time and getting rid high credit card debt can increase your score.

Reserve for a downpayment

The down payment is another part of the calculation to determine how much loan you will need. The smaller the down payment, the lower your monthly mortgage payments and the more interest you pay overall. Sometimes, a higher down payment may help you secure a better rate on your mortgage.

Karrash stated, "We recommend that people save at least 20% in order to avoid private mortgage insurance."

That type of insurance is for the protection of the lender if you default on your loan and usually is applied to mortgages that are for more than 80% of the home's value at the time of purchase. This insurance can be as low as 0.58% up to 1.86% depending on the loan's value.

Even though a 20% down payment might seem daunting, many home purchases involve much less. The National Association of Realtors reports that first-time buyers typically pay 7% on average. The average downpayment for repeat buyers is 17%.

'Maintain a stash of emergency funds'

You will need to pay for maintenance and repairs, in addition to real estate taxes. These costs can easily add up to thousands of Dollars.

Higgins suggested that you ensure that you have sufficient savings in case of unexpected costs.

"You should maintain an emergency stash," she said. "As you get older, it is more likely that unplanned circumstances will arise."

Financial advisors recommend keeping at least three to 6 months' worth income in a savings fund that you can access for unanticipated expenses.

Related Posts