The days of rising home values and bidding wars may not be over yet. Although rising mortgage rates are expected to eventually ease demand, the scarce housing inventory continues to present a challenge to today’s homebuyers.
According to one real estate agent, prospective buyers may need to shed their preconceived notions about buying homes in order to compete in this seller’s market.
“Buying a home isn’t what it used to be, and there are some new rules to buying a home,” Sam Salzwedel, a Tuscon, Arizona-based real estate agent, recently told Realtor.com.
Read on to see Salzwedel’s new rules for buying a home in today’s competitive real estate market. And if you’re ready to start the home buying process, you can visit Credible to compare mortgage rates for free without affecting your credit score.
THE BASICS OF CLOSING COSTS AND BUYER FEES
1. Get your mortgage financing in order before you buy
→ old rule: “Find your dream home, then finish your mortgage paperwork.”
→ New rule: “Secure a mortgage before you even start your search.”
If you find a home you love but don’t have a mortgage preapproval letter on hand, it may be too late to make an offer. This is because homes are selling quickly and spending less time on the market than ever before. According to data from Realtor.com, listed homes sold 10 days faster in March than the same period last year.
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“That house will probably be gone by the time you get a loan,” Salzwedel said.
As soon as you’re ready to start buying a home, it’s time to secure your mortgage financing. If you come prepared with a pre-approval letter from a mortgage lender, sellers know you’re ready to make a purchase. You can start the home loan process at Credible.
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2. Look for homes listed below your ideal sales price
→ Old rule: “Buy a house you can afford.”
→ New rule: “Buy houses below what you can afford.”
Despite signs of cooling demand amid rising mortgage rates, homes continue to sell for much more than what is advertised on the listing. About half of the houses sold above list price in March, according to real estate brokerage firm Redfin.
“There’s a good chance that everything you see is selling for more than the list price, so you might want to leave a little bit of room to offer above that list price,” Salzwedel said.
Do some research to determine how much you can afford to pay for a home, then ask your real estate agent to show you homes that are below your maximum purchase price. You can also use Credible’s mortgage calculator to estimate your monthly payments.
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3. Be prepared to make an offer the same day you visit a home
→ Old rule: “Take a tour of a property, then take a day or two to decide if you want to make an offer.”
→ New rule: “If you see something you like, prepare an intelligent and competitive offer as soon as possible.”
Buying a home is probably the biggest purchase you’ll ever make, and you may end up living in your next home for a decade or more. Because buying a home is such an important milestone, it’s important not to make a hasty decision.
But with homes spending less and less time on the market, today’s homebuyers may not have the luxury of taking several days to reflect. To make sure you’re buying the right house and not just any house, provide your real estate agent with an itemized list of must-haves and deal-breakers. If possible, keep your security deposit low and don’t forgo the home inspection.
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4. Submit your most competitive offer first
→ Old rule: “Bid below the asking price and wait for the seller to respond to your offer.”
→ New rule: “Put your big number in there from the start.”
In a competitive real estate market, sellers are likely to receive multiple offers within days of listing a property. If you bid below the list price, they may just move on to the next bid.
“Sellers are not making many counteroffers,” Salzwedel said. “It’s not necessary because buyers often offer more than sellers expected.”
Some motivated buyers may even offer cash to cover the difference if the property is not appraised for the agreed purchase price. But for many first-time homebuyers, the prospect of putting even more money up front, potentially tens of thousands of dollars in expenses, may not be realistic.
Discuss your options with your real estate agent to present the most competitive offer for your situation, without leaving your financial comfort zone. You may be able to set your offer apart from the rest by being flexible with your closing date, rather than offering more than the appraised value of a home.
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5. Don’t lose hope if your offer is not accepted
→ Old rule: “Expect to buy a house after submitting one or two offers.”
→ New rule: “You may be turned down multiple times.”
It can be daunting to put together the best possible offer on your dream home only to be outbid by a cash buyer or someone willing to forgo the inspection or appraisal. At the end of the day, you are making a purchase. The seller will generally go with the offer that is most financially beneficial to them, even if it is not yours.
“The new normal is dealing with rejection,” Salzwedel said.
This does not mean that you have to settle for less than what you want. Instead, it means you may need to be patient in finding the perfect home for you. And if you’re looking for the best possible mortgage deal, it’s important to shop around with multiple lenders. You can compare current interest rates among lenders in the table below and visit Credible to see mortgage offers tailored to you.
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