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This month, the Making Sense team answers client questions related to trade policy developments and their impacts on key economic issues.
You may not have planned to jump into a red-hot real estate market as a first-time homebuyer. But if you're ready to make the move from renting to owning, a competitive offer can boost your chance of success. Even when increasing your bidding price isn't possible, there are additional tips for buying a home that can strengthen your offer.
When you're buying a home in a competitive market, it's essential to have a few different arrows in your quiver. Certain strategies may work better than others—depending on the local market and your current finances—and you may need to try several tactics before finding a homebuying offer strategy that works. Here are a few techniques that could give you an edge.
Before you look at what's for sale, it's always a good idea to calculate how much you can afford. Having a set budget will help you resist the temptation to consider properties listed above a certain price. Talk with a mortgage banker to discuss a preapproval amount so you can determine your homebuying budget and increase your confidence when bidding on a home.
Your credit history is a big factor when getting approved for a mortgage. Lenders tend to favor borrowers with a history of regular, on-time payments to creditors. Knowing where you stand by checking your credit score can increase your bargaining power.
It's easy to select the first lender willing to approve you for a mortgage. However, it's important to shop around for the lowest rates and best options for your financial needs.
Getting preapproved for a mortgage is the first step toward becoming a credible potential buyer in the eyes of a seller. Gain an edge on other buyers by taking steps to secure financing before making an offer.
A real estate agent will narrow down homes available for sale in your price range. If you don't have an agent in mind, ask around for referrals or research agents online. You should always feel comfortable asking your agent for advice. They should be familiar with the local market and show an understanding of buying activity in your preferred neighborhoods.
That said, as a first-time buyer, you're your own best advocate. While working with an agent, you can still use your personal network to find homes before they go on the market. If you're comfortable sharing information, you could post about your home search on social media, put letters in mailboxes or join online community forums near your top-pick neighborhoods to get a sense of the local market. Then, if you do find a good lead, your agent can help you with next steps.
Price isn't the sole deciding factor in a multi-bid situation. Sellers don't want to accept a high offer only to have a deal fall through, which requires them to start the entire process again. If your bid isn't the highest, you can remain competitive by relying on non-pricing strategies. Each of these strategies involves its own risks, though, so make sure you understand the implications and feel comfortable before moving forward.
Contingencies are items written into an offer that allow the buyer to exit the purchase under certain conditions and receive their initial deposit back. Sellers may accept an offer with limited contingencies, even when the buyer is offering a lower price. Depending on your circumstances, you may consider limiting some contingencies in your offer.
One way to strengthen your bid without increasing the price is to offer a higher initial deposit. However, if the seller accepts your bid and the sale falls through, they may be entitled to keep this deposit money. You can also strengthen your buying position with a larger down payment along with a mortgage preapproval.
Sending a letter to homeowners in preferred neighborhoods may work if the timing is right and sellers are looking for a quick offer. But in the most desirable neighborhoods, homeowners may receive these appeals frequently, making it difficult for a first-time buyer to stand out. Although this is a popular homebuying offer strategy, you should discuss it with your agent first. Depending on what information is included in the letter, you may unwittingly open yourself up to liability or discrimination.
As home prices continue to rise, a fixer-upper may be another strategy for buying into a neighborhood with heavy price competition. Homes in need of cosmetic work or additional repairs may not sell as quickly. They may also sell closer to the asking price, giving first-time buyers more of an opportunity to compete. If you choose to buy a fixer-upper, be sure to allocate a portion of your homebuying budget for renovations and repairs.
Still have questions about buying a home in a competitive market? Sit down with a knowledgeable mortgage banker in your area for more clarity on preapprovals, the homebuying process and putting together a strategy that makes your offer stand out.
If you've found the home of your dreams, we can work with you to find the right mortgage for it.
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This material is for informational purposes only and is not intended to be an offer, specific investment strategy, recommendation or solicitation to purchase or sell any security or insurance product, and should not be construed as legal, tax or accounting advice. Please consult with your legal or tax advisor regarding the particular facts and circumstances of your situation prior to making any financial decision. While we believe that the information presented is from reliable sources, we do not represent, warrant or guarantee that it is accurate or complete.
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