5 Tips to Help You Buy a Home in a Competitive Market
The 2018 housing market is going to be challenging. Follow these tips to be closer to owning the home you want.
Before you start checking out homes you like, get preapproved for a mortgage.(Getty Images)
It’s a seller’s market these days. Homes are selling on average within three weeks – only taking a day to go off the market in some parts of the U.S. Buyers have little time to locate, bid and win the home of their choosing. Factors such as walkability, proximity to employment centers and desirability of school district are just some of the things driving up home prices.
Meanwhile, the reality of high rents across the country and the prospect of higher mortgage rates is convincing many people to take the homeownership leap now. But by being a little flexible when assessing these attributes, buyers can press through the competition and find and buy a home that they’ll love.
[Read: 12 Things That Trip Up Homebuyers.]
Here are five things you can do to make yourself a strong competitor in a tight homebuying market.
Get preapproved. While it should go without saying in today’s market, many homebuyers still begin visiting homes without a mortgage approval letter from their lender. Know the difference between prequalification and preapproval. A preapproval means that a lender has actually examined your credit and other expenses helped you determine how much mortgage you could afford given their underwriting guidelines.
Submitting an offer to a seller with only a prequalification letter could sink your bid in a hurry, because prequalification only shows how much house you could afford based on your income. A savvy seller’s agent knows that a buyer with strong income may have other debts that make affording a mortgage on their client’s home a financial stretch a lender isn't likely to approve. Submitting an offer with a preapproval shows you’re a serious buyer, ready and financially able to close the deal faster than a buyer without such an approval.
Avoid the contingency contract. Just about every real estate agent will tell you that contingencies in a buyer's offer will quickly move that offer to the bottom of the pile. Contingencies, such as having to sell your home before closing on the other one, will certainly turn off sellers. Remember, there is very little inventory on the market today on a national scale. Every market is different, but a firm, clean offer even in a less competitive market tells the seller you’re serious and more likely to finish the deal on time.
Make a strong net-price offer. Outside the hottest markets where bidding wars are the norm, buyers can realistically submit a price that is below asking. There is always wiggle room in determining a sale price. However, be realistic. Offering more than 10 percent below the asking price is a quick way for the seller to turn down the offer. An experienced real estate agent will help you make a strong, nonemotional offer.
The net price takes into account closing costs and any other monetary details agreed upon in the deal, as well as the sale price itself. To better capture the full picture of your offer, make sure your real estate agent has reviewed the net to the seller price, which takes into account everything the seller will be expected to account for. For example, a home might sell for full price at $300,000, but the sales contract had the seller give $10,000 in closing cost assistance. In this case, the net price is $290,000, not $300,000.
Gather your best down payment. Present an offer with the highest down payment that you could reasonably manage. Average down payments were on the rise in 2017, according to research from ATTOM Data Solutions, which curates a property database, reaching 7.6 percent of the median sale price, up from just over 6 percent in the middle of 2016. According to ATTOM, sellers are more likely to accept an offer from a buyer with a larger down payment for a variety of reasons, including the belief that a buyer with a larger down payment is going to more smoothly qualify for a mortgage.
For many buyers, gathering funds for a down payment is difficult. However, there are programs available across the country that can help a buyer add to the amount she's saved on her own. Remember, these down payment assistance products and programs are not limited to low-income buyers, and many are not just for first-time buyers. The best way to locate the right down payment program is to contact a local housing counseling agency. The Department of Housing and Urban Development website has an easy way to find a housing counselor.
Look for diamonds in the rough. Every in-demand community has them – houses that don’t put their best face forward. Buyers who are looking for their dream home will avoid homes that don’t have all of the latest bells and whistles and upgrades. Don’t be that buyer. Purchasing a home that needs upgrades or investments to bring it up to your standards may be worth investigating if the all-in cost can be managed. Not many people want to live through a home renovation, even a small one, but if you can look toward the finish line, a great home may be right in front of you.
If you are considering the purchase of a home that will need more than a new coat of paint and carpet to make it your dream home, do your homework when it comes to contractors and financing. Most nonprofit housing organizations in communities all across the country can help you identify experienced construction professionals.