Man signing a contract when buying a new house

"With our strong economy, it is a prime time to be selling and buying a home."

It’s taken nearly a decade for the housing market in Phoenix to return to pre-recession levels after home values fell drastically in 2007. Now, real estate in Phoenix is once again considered a valuable investment, and people are flocking to the area from comparatively expensive cities like Los Angeles and Seattle in search of a lower cost of living and, of course, warm weather.

According to Zillow reports in June, Phoenix home values have gone up more than 5% this past year, and the company predicts a rise in value of more than 2% within the next year. Sales are also up. The Arizona Regional Multiple Listing Service’s (ARMLS) April report shows housing sales are up 13.8% month over month. But real estate agents in the area are concerned, reporting low inventory since the market is rising steadily. A 2.4-month supply of inventory reported by the ARMLS makes it harder to secure your dream home.

We know that purchasing a home should be an exciting time in your life. However, in the spring and summer there is an increased demand in the housing market. There may be added pressures, such as lack of inventory and price wars that can make buying a home stressful.  Focusing on known items that can help alleviate stress and potential surprises during the home-buying process is advantageous for everyone. Here are a few items to consider before purchasing your new home so you are prepared and ready to secure a home in the growing Phoenix housing market.

 

Establish your budget

When looking for a home, it is important to have an established budget in mind. Your mortgage professional can help you determine how much you should consider purchasing and help you align your long-term financial goals with your budget.

When working on your budget, it is important to know you might be pre-approved for a larger loan amount than what you are comfortable spending. A mortgage payment is often amortized for 30 years, so keep in mind you will be making this payment for many years. The bank will qualify you based on monthly figures. Try to keep your house payment below 30% of your gross monthly income (before taxes) and your house payment plus your monthly debts at or below 43%.

Working with a mortgage professional can help you ensure your mortgage payment is within a financially comfortable spot where you are still able to enjoy activities even after buying your home. 

 

Think about your credit 

When you apply for your loan, the bank will order a credit report, which will provide your entire current and past credit payment history along with a credit score. TransUnion, Experian and Equifax each have a different scoring model; therefore, your credit score will vary from each agency. Most banks prefer a score of 640 or higher for financing.

You are entitled to one free credit report from each of the three major reporting agencies per year. One of the best ways to obtain this information is through annualcreditreport.com

 

Prepare for your down payment 

Down payment availability varies by loan program. Conventional and FHA loans offer as little as a 3% to 3.5% down payment, while VA mortgages can offer zero down payment loans.

The more money you apply to your down payment, the better your equity position is on your new home. Also, if you provide a 20% down payment, you will avoid paying the required monthly private mortgage insurance premiums.

Your mortgage professional can help you determine how much is needed based on your budget and will walk you through all the options.

 

Start the hunt! 

As you begin to look for your home, keep in mind this is a great addition to your financial portfolio and opens future financial avenues for you. A home can also be a great source for equity. Down the road, you may want to consider consolidating debt or opening a home equity line of credit (HELOC) to make improvements to your home.

With our strong economy, it is a prime time to be selling and buying a home. And with the right assistance and planning, this life event milestone can be both personally exciting and financially rewarding.

 

Diane Hughes is senior vice president, mortgage lending director at UMB Bank and can be reached at diane.hughes@umb.com.