How to Buy a Home: 8 Tips and Tricks from Real Estate Insiders
We are still in a Seller's Market, and one of the reasons we are is because there is a lack of inventory. Buyers still need to buy, and there aren't the normal amount of homes available. This means there are more buyer eyes on the good places - those homes that are priced correctly for the condition and location. The best properties will normally receive multiple offers and the seller will usually choose the highest offer, although sometimes there could be other factors, such as no home inspection, a quicker or longer closing date, etc. Even in a Buyer's Market, there are some strategies you can use so a seller accepts your offer over others.
Know What You Can Afford
Many agents won't show you a home until you're at least pre-qualified. Personally, we get pre-approved before we start looking. The difference is that a pre-qualification is an opinion based on the information you've given to a loan officer, and your credit report is usually run. A pre-approval is a full approval where income, employment, and bank information have all been verified and the lender is just waiting for you to find a property to be appraised. This makes you a much stronger buyer, just a notch below a cash buyer.
There are many factors that go into being pre-qualified or pre-approved. In simple terms, besides having good credit, the lender will check the ratio of how much you earn vs. your current debts. This determines the amount they will offer you for a home purchase. Sometimes, that amount is higher than you would personally feel comfortable with, but this way you'll know what you can afford and adjust your home search accordingly.
Stick within the purchase price you've been approved for. If you keep looking above your price range, you will most likely be let down when lower offers are not accepted. The homes in your price range won't look as good to you as those above, so you're causing yourself to be unhappy with what you can actually afford. There is a saying in real estate regarding buyers that always want to look above their price range - they have champagne tastes with a beer budget.
If You Have Bad Credit, You Need to Get it Fixed
There are free resources to get an annual credit report. However, a loan officer can get your true credit score, which could be different from the free scores you can get online or on a credit card statement. Credit Karma states that a good credit score is 720 or higher. If your score is lower than that, you still might be able to qualify for a mortgage, but you'll need to contact a lender before you start looking at properties. We have some great lenders we can share with you.
If you realize that your credit needs to be worked on, a good lender can help guide you - at no charge. If you're serious about wanting to buy your own home, follow the instructions you've been given and your credit score will increase. We've seen many buyers build up their credit and call us back when they have finally become credit-worthy and ready to buy.
Don't make large purchases while working on building your credit. This is something you need to consider before looking for homes and during the mortgage process. A car payment could be the difference of qualifying for a mortgage or not. It doesn't have to be something that expensive, so be careful when you're looking for a place with purchases you might want to make. If you need appliances or furniture, wait until you've closed on the property.
Hire a Local, Experienced Agent That is Representing You
You want to find an agent that you like and trust. You do not want to use a listing agent for every house you view. The listing agent is contracted to work for their seller, not a buyer that calls to view the property.
If you do use a listing agent, they are now considered a Dual Agent, which means they are not giving their fiduciary duty to either the buyer or the seller. It is like being a middle man. Dual Agency is illegal in some states because it is considered a conflict and most buyers and sellers don't understand the concept 100%.
Some buyers think that working with a listing agent will save them money. That's not true! If it saves anyone money, it will be the seller. If the listing agent has an adjustable commission rate in the listing contract, it is between the agent and the seller. Some agents will reduce their commission if they bring a buyer. As a buyer, you won't see those savings, and you won't be getting specific representation for your best interests.
As an experienced agent, I have sold homes outside of my local area. After we see several properties, we can both tell the difference between a place that is priced correctly vs. those that are priced too high. When I show properties, I point out anything that I can see, both good and bad.
If you're interested in a particular home, I will create a Comparative Market Analysis for you so you can see what similar homes in the area have recently sold for and other active listings that are similar and in the same area. This will help you to decide what you'd like to offer.
Trying to Time the Market
A mistake some buyers make is attempting to "time the market." I'm hearing buyers saying that prices will be going down next year (many said it would be last year or this year). So they think they'll save money by waiting until next year. They might be right, and they might be wrong. In the meantime, they either stayed in their current home, which is also going to be devalued, or they threw away another full year of rent money. Are they really ahead? How much would prices have to go down to make it worthwhile?
If you want to move now, then you should start looking now. Don't look into your crystal ball (and I don't have one), to try to determine what will be the best time to make a purchase.
I've owned many properties. I've only lost money on 2 of them. The first was because of divorce, and we didn't own the house that long. The second time was because the market had gone down in price, but we needed to move because we purchased the house 3 years prior because we fell in love with the style and look of it. It turned out it just wasn't big enough for us and we outgrew it quickly. The good thing is, we got a great deal on our next home, so we felt OK about losing money on our resale home. And then that buyer sold the home years later for a huge profit.
Don't Wait to Make Your Offer!
This is especially true in a Seller's Market, but it can also happen in a Buyer's Market. We always tell our buyers, "If you like this home, chances are there are other buyers that also like it." There are always homes priced correctly for the current market, and those are the listings that can sell in a day or two with multiple offers. We are seeing this now, in the middle of the Coronavirus pandemic.
I've recently had 2 buyers that missed out on homes they loved because they took too long to make an offer. I just had another buyer that made a lowball offer and the seller wouldn't even counter.
I can send comparable listings and offer advice, but I never push a buyer to make an offer if they're not ready. Usually, once a buyer loses a couple of homes they loved, they don't take as much time to figure it out when they find the next place.
Some buyers have an expired pre-qual letter so they're not ready to actually write up the offer since the pre-qual letter must accompany it. Some buyers find an agent that will work with them prior to them getting qualified, so they don't have a pre-qual letter at all. By the time they get one, the property is already under contract.
Some buyers think that the listing agent is lying when they say they have multiple offers, so they don't come up with a good offer. I've worked with several buyers that felt this, and when they lost the house to another buyer, they realized that the agent was telling the truth.
Listing agents aren't required to disclose the fact that there are multiple offers unless the seller gives them written permission to do so. Sometimes, buyers will back out when they know they'll be in a bidding war, so it can backfire if another buyer knows there is one or more offers already on the table.
If they are allowed to disclose that there are multiple offers, they will usually notify all buyers to write up their "best and final" (sometimes called "best and highest") offer. This allows you to change your offer price, closing date, remove the inspection, appraisal, or other contingencies, etc.
When there are multiple offers, the seller usually gets asking price and sometimes even higher. As a buyer in a multiple offer situation, you really do need to make the best offer you can if you really love the house. You won't get a deal or markdown, but you might get your offer accepted.
Show the Seller That You're a Serious Buyer
Even if you're not in a multiple offer situation, you want the seller to know you're a good buyer. This includes things we already mentioned, such as having your pre-qual or pre-approval letter or proof of funds (for cash buyers), signing and initialing the offer properly (it needs to be in writing, verbal offers have no weight or legal consequence), and there are a few other things you can do so a seller will feel good about your offer.
- Make a fair offer if you really love the property. A Comparative Market Analysis will help you determine what a fair offer would be. Many sellers will not respond at all to a lowball offer.
- Come up with a good amount of earnest money and deliver it ASAP if the offer is accepted. This is your money that will be credited to you towards your closing costs/down payment. You could also lose this if you breach the contract, so don't go into any offer if you're not that serious. Once signed by all parties, this is a legally binding contract.
- Don't ask for closing cost help from the sellers unless you really need it. Many buyers ask for closing cost assistance from sellers because they've heard that friends or family got it. If you don't need the financial help, don't ask for it. You'll usually be paying for it by getting a higher counter-offer than if you didn't ask.
- Don't ask for every single little thing on the inspection report. Unless you're buying new construction, a resale home will not be perfect (even new construction can be less than perfect). You'll be able to see if the windows are old or new, so if the seller didn't replace them, they have no intention of doing so, and they might feel that the price of the property reflects that. Choose what is most important to you and understand that a seller isn't required to fix anything.
- Follow contract timelines 100%. You could lose your earnest money if you breach the contract. You need to get your inspection done within contract guidelines and you need to apply for your mortgage and get your required documents in a timely manner.
- By following the contract timelines and giving required documents to your lender, you should be able to close on time. This is something you need to strive towards.
Get a Home Inspection
You might think this is a silly "tip", that you wouldn't think of purchasing a home without having a home inspection. But there are some strategies to use. You need to realize that this is your 2nd round of negotiations.
As much as you love and trust your father or your Uncle Bob, this is when you need a licensed inspector. The inspector will be telling you every single thing they see. They will also give you maintenance suggestions.
As mentioned before, a seller is not required to fix anything. During the inspection timeline, this is your chance to get out of the contract and get your earnest money back if you and the seller can't come to agreed-upon inspection negotiations. What you really want to ask for major mechanical items that are broken or cause a health or physical hazard.
You might want to have additional inspections such as radon, termites, etc. Some inspection companies have the ability to do these types of inspections along with the normal home inspection, but specialty inspections are an additional cost. It might be done by the regular inspector but radon inspections are usually done separately from the regular home inspection, even if done by the same inspection company.
Remain Credit-worthy up to the Closing
Because of the Coronavirus pandemic, lenders are doing a credit, financial, and employment check just before closing. There have been many recent canceled closings because buyers lost their jobs just before the closing. It's a terrible situation when you're ready to move to a new house from your prior living space, which you might have to leave.
I've mentioned above some things you shouldn't do, and even a small purchase on a credit card can halt your home purchase. Don't remove or put large sums of money into your bank account during this time. You shouldn't be making any financial changes that appear questionable. If you still have a job with plans to get another one at a different company, even if it's for more pay, try to wait until after the closing before making the switch.
Now is not the time to co-sign a loan for someone else. They'll have to wait until you've closed on your home purchase. Personally, even then I would have to really consider ever co-signing for anyone. I watch too many court TV shows to know the negative consequences that could occur.
In summary: There are some things you don't have control over, like losing your job at no fault of your own. But follow the above advice for those things you do have control over.
- Know what you can afford & stay within that range when looking at homes.
- If you can get pre-qualified, keep your credit clean up until closing. If you're not able to get qualified, work on your credit.
- Hire a local REALTOR® that is representing you - not the seller nor a dual agent.
- Create a fair offer if you love a place, especially if you're in a multiple-offer situation (then come up with the best offer possible). Let the seller know you're a serious buyer.
- Don't try to time the market, none of us has a crystal ball. If you want to make a move now, do it!
- Don't take too much time to think about making an offer on a home you love. It might not be available once you've made the decision.
- Get a professional home inspection and understand how to negotiate repair requests.
Give me a call at 708-536-8200 to get a list of loan officers/lenders, to get set-up for an automated home search, and to start looking at homes in person.