While there are several signs the housing market is starting to cool, homebuyers and investors shouldn't be fooled: It is still very much an explosive real estate market.

The median home price reached its highest level in history in June 2022. Low housing inventory and steady demand mean competition still remains. Add in rising mortgage rates, and it's an interesting market to buy in.

To help you make the most of the experience, here are three things you should do if you're planning to buy in today's red-hot housing market.

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1. Get your finances in order

Lending requirements are tightening as mortgage rates rise. Fannie Mae and Freddie Mac, two of the largest government-sponsored entities (GSEs) that offer low down payment loan programs like an FHA loan, in particular, have tightened their automated underwriting criteria in June 2022. That means borrowers who were barely getting a loan approval need to improve their financial situation before buying in today's market. 

Improving your credit score is a great place to start. The higher the score, the better rate you can secure, and the less likely things will fall apart at closing. It's also a good idea to increase the amount of money you have as a down payment. Even if you don't use all of it by buying a home under budget, you know you have the money to cover unexpected expenses that may arise during or just after the buying process.

It's also a good idea to pay off any unnecessary debt like credit cards. Not all debt is bad, so having some debt isn't necessarily a cause for concern, but carrying balances on credit cards isn't going to help your chances of getting approved.

2. Get prequalified

In a rising mortgage rate environment, it's extra important to make sure your finances are in order. Getting preapproved will start part of the underwriting process, but once you're under contract, it's important to make sure the transaction doesn't exceed the rate lock period, which is the time period the mortgage rate terms are locked at a set payment and percentage.

A growing number of real estate transactions are falling through, often because the closing was extended and the buyers can no longer afford the home purchase at a higher mortgage rate. To avoid this, prior to closing, avoid making any major purchases that could impact your credit score. Don't apply for any new lines of credit, and, of course, make sure to maintain your current payments. Lenders rerun credit prior to closing to make sure everything checks out, so any big changes could impact whether you close.

3. Maximize your search from multiple sources

You don't need a real estate agent to buy a property, but having one can be especially helpful in today's competitive, fast-paced housing market. A Realtor can expand your search, possibly getting pocket listings from fellow agents, and they can help make sure the transaction moves along as needed. If you're a real estate investor, make sure to vet the agent to ensure they know how to work with investors -- there's a big difference in how you buy as a homebuyer versus as an investor.

In addition to working with an agent, start a free search on the major online sites like Redfin or Zillow, and make sure you're alerted if a new property hits the market that meets your criteria. Competition has slowed a bit, but multiple offers are still out there, so getting your offer in early will increase your chances of getting the offer accepted.

The most important thing to remember is that your budget should guide you. Don't overpay simply because it's a frenzied market. Understand how higher mortgage rates affect what you can afford, and adjust your search to reflect that.