For the past couple of years, it's pretty much been bad news for would-be home buyers. Not only have mortgages gotten increasingly expensive to sign, but home prices have risen despite the higher cost of putting a mortgage into place.
In January, U.S. home prices increased 5.8% on a year-over-year basis, according to data from CoreLogic. But the news isn't all bad. CoreLogic also projects that annual home price growth will slow to 2.6% by January of 2025.
Furthermore, the Federal Reserve is expected to start cutting interest rates later on this year. Once that happens, it could lead to a modest drop in mortgage rates. So all told, it may be easier to buy a home around this time next year than it is now. And if you make these moves in the next 12 months, you can put yourself in an even better position to purchase a home.
1. Boost your credit score
Mortgages tend to be large loans by nature. So mortgage lenders want some degree of reassurance that you're likely to repay your home loan as you're supposed to.
The higher your credit score, the more confident a mortgage lender might be in your ability to repay your loan. So it pays to boost your credit score ahead of your mortgage application to not only increase your chances of getting approved for a home loan, but also, to potentially snag a more competitive interest rate.
There are different steps you can take to boost your credit, but one of the most effective ones is to pay your incoming bills on time consistently. That's because your payment history carries more weight than any other factor when calculating your credit score.
Another option for boosting your credit score is to pay off existing credit card debt. The lower your credit utilization is, the higher your score might climb. Plus, having less credit card debt can be a good thing from a mortgage application perspective because lenders also tend to look at your debt-to-income ratio, which measures your total monthly debt payments relative to your paycheck.
Finally, don't underestimate the importance of reviewing your credit report for errors on a regular basis. Spotting and correcting a mistake could lead to a higher credit score. You're entitled to a free copy of your credit report every week from the three major credit bureaus -- Experian, Equifax, and TransUnion.
2. Sock money away for a down payment
While home price gains might slow in the course of the next year, that doesn't mean a 2025 home purchase will be inexpensive. To put yourself in the best position to afford a home, focus on saving as much as you can for a down payment.
If you're able to put down 20% on a conventional mortgage, you can avoid private mortgage insurance, a costly premium that's tacked onto your housing costs. And even if making a 20% down payment on a home isn't doable, remember, there's not a lot of housing inventory on the market these days, so you may have to settle for a home that needs work. The more money you're able to save in the coming months, the more options you'll have for tackling necessary repairs early on.
It's definitely been a challenge to purchase a home in recent years. And it may not exactly be a piece of cake in 2025, either. But the fact that home price growth is expected to slow is a good thing for buyers. So now's the time to make a plan that allows you to jump on that opportunity.
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