How to buy a home in a cooling market, according to top-ranked

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, Realtor.com’s latest monthly report shows.

However, conditions generally appear to be shifting in buyers’ favor as demand continues to fall. In the face of higher interest rates — which makes payments less affordable and reduces the pool of potential buyers — median home prices have been sliding on a monthly basis since hitting an all-time high of $449,000 in June, according to Realtor.com. 

While it’s impossible to know with certainty where home prices or mortgage rates will be in the coming months and years, there are ways to make sure you’re in the best financial position possible to enter the market as a buyer, whether soon or down the road.

Here are some tips that may help you get ready.

The first thing to do is figure out how much home you can truly afford, experts say. This means having a good handle on 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, based in Downers Grove, Illinois, ranked No. 77 on the 2022 CNBC Financial Advisor 100 list.

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

“Think about spending no more than 25% to 28% of your gross monthly income on your payment, including taxes and insurance,” said CFP Dean Karrash, principal at BLB & B Advisors in Montgomeryville, Pennsylvania. The firm ranked No. 87 on CNBC’s FA 100 list.

The home-buying transaction itself also generally comes with expenses, such as mortgage fees and other closing costs, such as transfer taxes or the price of a title search. Those one-time costs can total thousands of dollars.

You also should consider ongoing costs that come with homeownership like maintenance and repairs. 

“Try not to be house rich and cash poor,” Karrash said. “You’ll find there are a lot of things you can’t do, like afford a replacement vehicle or go on vacation.”

As you may know, the higher your credit score, the lower the interest rate you can qualify for on a variety of loans, including mortgages. Home buyers with lower credit scores may pay almost $104,000 more over the life of…