The market is challenging, but we can help
Great interest rates mean it’s a favorable time to buy a new home. But if you have started the hunt, you may have already run into a few obstacles. Low inventory means houses do not stay on the market long. If you do put in an offer, you could face stiff competition. At the same time, prices are still creeping up.
One good thing, as we head into Fall, there is a bit less competition among buyers, so don’t give up your home search!
It’s not easy being a home buyer in a seller’s market, but we have some valuable tips to get you into your next ideal home.
Use your financial strengths
Cash is king in any market, but particularly in a seller’s market. If you are able to make an all-cash offer, it is a stronger offer because you are not relying on securing financing. Even if pre-qualified for a loan, a deal could fall apart if the purchase price is more than the appraisal. Making a cash offer avoids these issues and gives you an advantage over other buyers.
If an all-cash offer is not an option for you, make sure you are pre-approved with a lender that offers legitimate, credit-underwritten pre-approvals. The pre-approval should be enough to cover the cost of the loan for the house you bid on.
Mortgage pre-approval goes further than pre-qualification because you submit all the required paperwork up front. The bank then verifies the amount you can afford to pay for your next home. It takes the guesswork out of your home search and shows sellers you can back your offer up with real money.
Having your finances in order will also help you close faster, with less loan-oriented stress.
Mind your budget
With less inventory coming on the market, it may be difficult to find exactly what you want. Resist the temptation go well beyond your budget in a bidding war. Actively follow up on any new listing, but also be prepared for a prolonged search.
By law, banks cannot underwrite a loan unless they determine you can reasonably pay it back. That determination is based on your credit, job history (and stability), and your income. Lenders can’t approve mortgages that would take up more than 35% of your monthly income. Most lenders stick with even more stringent requirements, limiting a mortgage payment to 28% of a borrower’s monthly income.
Many financial advisers suggest cutting that mortgage payment percentage to 25% of your income. It’s a good benchmark, but each person’s budget and financial picture is going to be different, and only you, not the bank, can determine what you can actually afford. First, use an advanced mortgage calculator to not only determine how much the new home will cost, but also add in insurance and taxes. To figure this out, head to Trulia’s mortgage calculator and click “advanced.” Consider other essential expenses such as child care, student loans, credit card debt or car payments. Then there are typical monthly living expenses. If you are moving to a larger home, ask your realtor for an estimate of utilities.
Consider your options
One advantage to living in West Central Minnesota is there is typically a lot of buildable land. Consider buying a lot and building a new home.
You may also want to check into any new housing developments. Often construction costs can be less because the developer has an economy of scale, constructing multiple homes in one area.
With many communities in our area within a short driving distance, expanding your search into other townships will give you more options.
Prepare a backup plan if selling your home first
Our friend’s parents sold their large estate intending to downsize, including seeking a one level home. They quickly received and accepted an above asking offer. Then, they could not find a suitable home to buy.
If you are selling, it is important to put as much effort into looking for your new place at the same time. A back up plan is also a good idea.
Here are a few ideas to consider:
- Rent your home back from your buyers until you find a new place.
- Move into an apartment or other short-term rental.
- Ask to stay with family (and save extra money in the process!).
Moving twice is no fun, but it’s better than rushing into a home purchase you may regret.
Keep calm- we’re here to help
Buying a home in a seller’s market can add stress, but we are here to relieve some of that burden. We will help you every twist and turn of your home purchase, inspiring confidence along the way.