The Top 5 Things to Know About Buying in a Seller’s Market

When it comes to buying a home, there are always a lot of questions that people have. In today’s market, the questions are usually around why an offer wasn’t accepted. So, here are some key points to keep in mind to increase your buyer position in this market:

• Financing: shop banks for the best rates, get pre-approved
• Loans: decide what loan type is best for you, know what PMI is and why you should try to avoid it, know your credit score and how it affects your loan
• Mortgage Payment vs Monthly Bills: calculating what you can really afford, not just your max loan amount
• Communities: schools, location, walkability and drivability scores, HOAs, amenities and other city/town/HOA regulations to consider
• Needs vs Wants: know your needs vs wants in your future home

Financing

First step, get a realtor. A good realtor has connections in the mortgage industry. If you have a great realtor, they should have access to high class lenders from several different lending institutions with competitive rates. Based on your needs and goals, you and your realtor can decide what lender would best fit your needs. Once you have the lender nailed down, it’s time to get you pre- approved.

“Why do you need pre- approved instead of pre- qualified?”

Pre- approval shows you the maximum amount the bank will approve you to borrow after underwriting has looked into your credit history, bank accounts and debt to income ratio. Pre- qualified looks at credit and not actual buy-ability. Getting pre- qualified will not help your buying power because your lending could still fall through. Without a pre- approval letter in a seller’s market, you have zero buying power at the table if you try to make an offer on a home. They will have other buyers lined up who are pre- qualified. The goal is to make sure that you are a competitive buyer when you make an offer.

Loans

While shopping the market for your home, it will be important to know what type of home loan you want or qualify for.

6 Types of Mortgage Loans

• Fixed Rates — also known as term mortgages
• Adjustable Rate — initial rate that adjusts to market in time
• FHA — allows for lower down payment amount, more restrictions
• VA — for veterans of the US military, no down payment and no PMI
• Conventional — not backed by the government, fewer restrictions when buying houses that need repair
• Interest Only — great for those with uneven cash flow but high assets

Once you decide which loan is right for you, it’s important to consider how much liquid cash you have to put down. There are certain loans that will allow you to put zero cash down, but most of them will require you to carry and pay PMI — mortgage insurance — if you do not put 20 percent down. This will increase your mortgage payment until you reach the 20 percent mark of your home loan. That adds up over time. It is recommended that you buy with intentions of putting 20 percent down for a few reasons: you don’t have to pay PMI, you are not too stretched in your home loan, and you have more power to make an offer on a home.

Know how your credit score and credit report affect not only your ability to get a loan but also the interest rates you are offered when you are approved. If you are a first time home buyer, any negative reports from landlords affects your score, any late payments or overdrafts affect your score. Having high credit usage will affect how much you can qualify to borrow.

Lastly, moving money around after applying for a loan, makes it harder on everyone when you go to close on a house. So once you start the pre- approval process, DO NOT MOVE MONEY! If you do, you will have a paper trail of headaches following you to closing.

Mortgage Payment vs Monthly Bills

There are always aspects that get overlooked when it comes to big life decisions. One of the leading stressors in buying a house is the cost of living. Many people will look at the loan amount they are approved to borrow and begin searching for houses in that price range. When you break it down into monthly mortgage payments, it does not look so bad. The issues that get overlooked are bills. When you buy a home, you do not just pay the mortgage, you also have to pay the bills. Some of these bills you were already paying. Some might be new and be a big surprise.

Here are some bills to keep in mind when it comes to buying a home:

• Utilities — is the property larger/smaller than your current space? What are the average monthly costs?
• HOA — Is there an HOA? What does it cost?
• Parking — does your home have parking or do you need to buy a parking permit/ rent a space? What are the costs?
• Accessibility — does the property have what you need or will you need to invest more to make it accessible?
• Travel — Will you need to buy a public transportation pass to get around? Will you have a longer/ shorter commute? What are the costs?
• Taxes — Are your taxes being paid with your mortgage or do you need to pay that separately?
• Insurance — Are you in a floodplain? Is there a pool or hot tub? Anything that adds risk to your property adds cost to insurance. What will it cost to insure the property?
• Misc — add up all of your technology, personal care, etc bills
• Costs — What is the total of all your bills together and are you comfortable paying that bill monthly?

Once you have that total bill, you know how much it actually costs to buy that property. If that number is too high, consider looking at houses in lower purchase brackets, building, or saving to buy later in the future.

Communities

There are perks to living everywhere — cities, towns, country. As a buyer, you need to understand what it means to invest into these areas. Here are some things to consider when deciding where you want to look:

• Noise pollution
• Floodplain
• HOA/ community restrictions
• Traffic
• Accessibility
• Crime reports
• Access to Public transportation
• Walkability
• Drivability
• Schools
• Taxes
• Location to nearest: grocery store, hospital, park, school, library, highway, restaurant, etc.

Think about where you currently live and what you like and dislike about that area. Take that information and use it to be a better searcher and buyer for your home. By narrowing down what you are looking for in a home and area, you increase your chances of being a first or best offer. If you look at every house on the market, you might miss a great find in the mess of too much.

Needs vs Wants

Once you have gone through and researched your actual costs and the number you are comfortable spending, it is time to look at the market. The current market favors sellers. To be a strong buyer, you need to know what you can truly afford. When you know this, you can bring more power to your offer. Right now, buyers are offering upwards of $20,000 over asking price with no contingencies in order to be considered by the sellers.

As a buyer that means you really need to know what you must have in your home versus what you want in your home. You might not find everything in a price range you can afford. This is the time to be realistic with yourself about your needs.

• What do you need in a home?
• What do you want in a home?
• Does the home need to be move- in ready or can you afford to get work done later as needed/ do some work yourself? (Keep those costs in mind when it comes to your price point. Do you have liquid funds at the end of the month to set aside for these projects?)
• Do you need to look at building a new home instead?
• Do you need to consider school districts, proximity to certain places frequented or other family related concerns?

Answering these questions can be really hard, and that is why it is great to have a trusted, non- emotionally attached person on your side as you try to get through this process. There are so many reasons to have a realtor, and this list helps you to see some of those reasons. So if you do not have a realtor yet and you are still considering buying in this market, consider finding a realtor to be on your side when the time comes to search for your home.