Here are home-buying advice for a cooling market

The housing market is starting to cool off, so here are some helpful buying advice.

Even when things go well, it can be hard to become a homeowner.

When you factor in higher mortgage rates, higher home prices, and high inflation that doesn't seem to go away, the current environment for buying a home may seem completely out of reach.

Mortgage News Daily says that the average rate for a 30-year fixed-rate mortgage has been above 7% for most of October. This is more than double the 3.3% rate that was expected for 2022. The latest monthly report from Realtor.com shows that the median list price for a home in the U.S. was $427,000 last month, which is 13.9% more than a year ago.

But as demand keeps falling, things seem to be getting better for buyers in general. According to Realtor.com, since hitting an all-time high of $449,000 in June, the median home price has been going down every month. This is because higher interest rates make payments more expensive and reduce the number of people who can afford to buy a home.

Even though it's impossible to know for sure what home prices or mortgage rates will be in the coming months and years, there are things you can do to make sure you're in the best financial position to buy a home, whether it's soon or later.

Here are some things you can do to get ready.

Learn how much you can spend on a home.

According to experts, the first step is to determine how much house you can actually afford.This means that you should know how your money is doing right now.

Sandy Higgins, a certified financial planner and senior wealth advisor with Capstone Financial Advisors, said, "Understand your current budget. What are your expenses? How are you spending, and do you need to make any changes? " The Downers Grove, Illinois-based company came in at No. 77 on the CNBC Financial Advisor 100 list for 2022.

Even though buying a house is a one-time deal, most of what makes a house affordable are the monthly mortgage payments.

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

The process of buying a home also usually costs money, like mortgage fees and other closing costs like transfer taxes or the cost of a title search. These one-time costs can add up to a lot of money.

You should also think about the maintenance and repair costs that come with being a homeowner.

"Try not to have a lot of stuff but not enough money," Karrash said. "You'll find that you can't do a lot of things, like buy a new car or go on vacation."

"Make better" your credit score.

You may already know that the better your credit score, the lower the interest rate you can get on loans like mortgages. A Zillow analysis shows that home buyers with lower credit scores may pay almost $104,000 more over the life of a 30-year fixed-rate mortgage than someone with an excellent credit score.

Higgins said, "Take a look at your credit score and see if you need to make any changes."

In general, the best mortgage rates are given to people with credit scores of 740 or higher. But keep in mind that the scores you can see for free online, such as your VantageScore, are not usually what lenders use to decide if you can get a loan.

Mortgage lenders get your credit score from Equifax, Experian, and TransUnion. However, they use a specific FICO score, which can be different from an educational score.

Paying your bills on time and getting rid of a lot of credit card debt can help your score go up no matter what.

Save up for a deposit.

Another factor in determining how much house you can afford is the down payment.It helps figure out how much of a loan you need. The less you need to borrow, the less interest you'll pay overall and the less you'll have to pay each month on your mortgage. You can sometimes get a better mortgage rate if you put down more money.

"We usually tell people to put at least 20% down to avoid private mortgage insurance," Karrash said.

This kind of insurance protects the lender in case you don't pay back your loan. It is usually required for mortgages that are for more than 80% of the home's value when it is bought. It can cost between 0.58% and 1.86% of the value of the loan.

If a 20% down payment seems too high, keep in mind that many people buy homes with much less: The National Association of Realtors says that first-time homebuyers put down an average of 7% of the price of the home. The average down payment for people who have bought before is 17%.

"Keep a stash for emergencies."

Aside from real estate taxes and homeowners' insurance, there are other costs that come with owning a house, like paying for maintenance and repairs. You could easily spend thousands of dollars all at once on these things.

Higgins said that before you buy a house, you should make sure you have enough money in savings to cover any unexpected costs or changes to your income or budget.

"You should keep a stash for emergencies," she told him. "Once you buy a house, these unplanned things happen more often."

Financial experts say that you should have at least three to six months' worth of income saved up in case you have to pay for something unexpected.