Tips for Buying a Home in Today’s Market
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Need vs. Want: Focusing on what’s important to you!
Before you feel that itch to start browsing what’s on the market, pump the brakes and take a moment to start by making a list of the features you’re looking for in your new home. Odds are, that list will likely outgrow your budget. But don’t worry, the key to this exercise isn’t to focus on what lies outside your means but rather to hone in on the necessities of what you do need for the daily overall functionality and comfort of your home. I’ve realized that my own ‘would like’ list is quite substantial, whereas my ‘must haves’ list may equate to a few key elements.
While you’re browsing through listings, don’t be afraid to be unconventional! (And here’s the hard part…) Try to forego viewing the photos first, instead scroll down to review the home’s specifications and features. The right home will do its very best to work for you. If it doesn’t cover your ‘must haves’, don’t fret over what isn’t the right fit and take a tip from Tinder – just swipe left, there is always the next house.
Confession time…
I am entirely “that person” who becomes enthralled by original millwork, custom Craftsman styled built-ins, or dutch doors, but I’ll never let a gorgeous feature or the well thought out staging of a house to allow me to stray from my ‘must haves’. I mean… we need them for a reason, right?
Tip!
Your real estate agent is there to assist you. Let them! Once you get your list together of ‘must haves’, provide it to them and set boundaries for your home search. It’ll save you time, money, and keep you focused in your search!
2. Establish Your Budget
With the fluctuations in today’s market, it is crucial to determine your budget early on and prepare yourself to stick to it because there will always be variables you cannot plan for.
When determining your budget make certain to account for your known ongoing monthly expenses before factoring in the estimated utilities, property taxes, Home Owner’s Association (HoA) fees (when applicable), and overall maintenance. Also known as ‘sleeper costs’, they can become background noise in the grand scheme of home purchasing and have the potential to start spiking your overall estimated monthly payment/expenses. Your realtor can provide you with the approximated property taxes as well as make you aware of if the house holds any HoA fees, and if they do, whether they are due monthly or annually.
Forewarning – over the past year the economy has continued an upward incline, which has resulted in, slow but steadily, rising interest rates/home prices. You’ll find this only worsens in more desirable areas …that’s right, here’s looking at you location. But if you have your ‘must haves’ list waiting in the wings, you already have a good idea of what you might have to compromise on to snag the perfect listing for you – be that home repairs required, overall square footage, or looking just outside your target neighborhood.
What to keep in mind…
Allow yourself some breathing room. Life is full of unexpected turns be it a loss of work, illness, emergency, or even new uniforms for little league, you name it…they’re there. We applied the one-third rule to our home purchase in that we were only willing to allot up to one-third of our monthly revenue towards a mortgage payment (including PMI). It will not only take the pressure off when something unexpected happens but help you to avoid running in the red.
Tip!
Always try to plan on putting 20% down on your home. This will help you avoid paying private mortgage insurance (PMI) which will stay in effect on your monthly mortgage statements until you’ve paid off 20% of the loan. More importantly, it will also reduce your overall financial risk. The market is fickle and never guaranteed, you don’t want to find yourself owing more than your home is worth when it’s time to sell.
3. Pre-Approval is KEY!
What does pre-approval actually mean?
Essentially, a lender has looked over your credit reports, income, and employment history in depth. Based off their findings, they have determined the maximum amount you can borrow, the interest rates available to you, and which loan programs you qualify for (when applicable).
What does this mean for you moving forward?
A letter of pre-approval is a key tool for your realtor when seeking to notify a Seller of your interest. You aren’t just a lookie-loo, you’ve documentation that shows you CAN afford the home you’d like to view or place an offer on. It saves you time and allows you to fine-tune your budget before even beginning your search.
Tip!
If you would like to obtain a pre-approval but don’t wish to affect your credit score, you can rest easy as not all inquiries will affect your score. A ‘soft inquiry’ is known as a pre-approval letter that does not come with a credit or loan offer attached.
4. Making an Offer
When it comes to making an offer on a home there is no perfect formula to follow. Instead it’s important to keep two key things in mind before you determine your offer: What you can reasonably afford monthly as well as what you honestly feel the home itself to be worth.
Overpaying will only hinder you in the long haul and place you at higher risk in the event of a recession, but on that same vein, if you low-ball an offer in hopes of having back-n’-forth negotiations with a Seller you will find that most are no longer willing to bother. Reason being, they don’t need to. Immediately following the last recession it was a Buyer’s market. For a few years it was an expected strategy of most home buyers to bid low and ultimately compromise somewhere in the middle of your original offer and the listed price of the home. Please note, that is absolutely no longer the case.
Be realistic in your offer. Make your own personal appraisal by looking to what comparable homes have been listed and actually sold for (your realtor can help you here), compare the upgrades / overall improvements made to the home against other similar listings in the area, and how long the home has been on the market. Keep in mind that currently in most areas, it isa Sellers market.
Tip!
Be intentional with your offer, let a Seller know you’ve put time and thought behind your bid. If you were planning to go in at an even $150,000, reconsider offering $149,875. You would be surprised by how much going outside the standard “even dollar amount offer” stands out when there are multiple offers on the table.
5. Getting the Best Rate from your Mortgage Lender
As we have moved around a bit we find that the one question we’re asked more and more is: Do we have a choice in who finances our home mortgage? Quick answer, YES! In fact, I always recommend shopping around when it comes to lenders. It is hands down the best way to see that you get the best financing deal for -you-.
The realty company you’re using will generally recommend that you use their preferred lender by default. That may prove to be the best deal, but it is still worth the extra time to have at least three lenders provide you with their rates/deals based on your credit and loan amount. When you consider that a home is still categorized the same as to say… your car, it’s easier to visualize (at least for us!) how certain terms and prices may be negotiable.
Does this only apply to home purchases?
Whether you are purchasing a home, refinancing your current mortgage, or looking for a home equity loan, it still applies! Always advocate for the best deal!
Tip!
Certain lenders may be more negotiable dependent on your specific circumstances. The Balance has complied a handy reference list of mortgage lenders for 2019 divvied up by the home buyer’s needs:
https://www.thebalance.com/best-mortgage-lenders-4165118
6. Home Inspection
Having an inspection performed once you find yourself under contract for a home is a MUST on your closing to-do list. Having a professional home inspector out to inspect your home will include checking that all of the utilities and major systems are working properly as well as determine if there are any obvious underlying issues of concern that you should be made aware of.
It is important to remember that while a home inspector will give you a good overall idea of the home’s current condition/state of repair, they are usually not able to check or test absolutely everything due to lack of proper access or safety. In these instances, they will generally notate where they recommend having a licensed professional come out to review and advise on particular areas of concern, where applicable.
Are all inspections one and the same?
No. In certain cases, depending on the age of your home, you may want to request “add-ons” to your inspection. While it will cost slightly more upfront, it has the potential to save you thousands in the long-run.
For example, one home that we purchased was a newer-construction build in 2007. We were made aware that from 2001-2009, compromised Chinese drywall was imported and used in the construction of U.S. homes. For those built with the affected drywall (it is important to note that not all imported drywall was affected), it led to uninhabitable conditions by means of toxic emissions that could cause mild to severe health issues.
As our home was built during the tail end of the ‘peak years’ of this known housing issue, we elected to pay an additional fee following our general home inspection in which the inspector checked for any evidence of the presence of Chinese drywall. Fortunately, as we were quite smitten with the home, no evidence was found to suggest its presence and we moved forward with closing.
Tip!
When you find a home you’re ready to place an offer on, verify the year it was built. A quick search will let you know of any potential health concerns associated with materials used during that time-frame.
Sidenote: As mentioned above, if you have any concerns regarding possible Chinese drywall in a home you’re looking at or already own, you can find detailed information here:
https://www.cpsc.gov/safety-education/safety-education-centers/drywall-information-center/how-can-i-tell-if-my-home-has-problem-drywall
Additionally, if your home was built prior to 1978, it is likely that lead paint was used, for more information you can visit:
https://www.epa.gov/lead/protect-your-family-exposures-lead
Finally, most homes built before 1980 may have asbestos present as it was commonly used in various materials, you can find more information here: https://www.asbestosnetwork.com/Worker-Safety/Asbestos-In-The-Home.shtml
7. Request a Current Survey
Surveys, who knew right? Though you may never come across it (fingers-crossed), it is extremely common to have disputes over land be it over where your fence line is placed to that of property easements. Keep in mind that property easements are more commonplace than you may realize and are not removed only because the property deed has swapped hands. An easement can be removed, but only if both parties agree to
What is an easement?
Though there are many types, generally an easement will grant legal right to a person or organization in the use of an area of your land for a previously notated purpose (ie: drainage, access, through-way).
For example, say the Seller was approached by a power company, during their ownership of the property, and the power company requested a right-of-way through a specified section of the property in order to reach and maintain three electrical poles. If the Seller granted legal access to the power company, it would create an easement on the property, providing the power company access to utilize and access the right-of-way. It would not allow the use of any other individual or organization access. As having access for the agreed upon purpose, in this case a right-of-way, is legally binding, you would not be able to build / construct anything permanent upon the portion of land containing the easement. While an easement can be terminated, it would require the agreement of both the property owner and “holder” of the easement.
Tip!
All existing property easements MUST be listed in your contract. If not, you hold the right to terminate the contract without loss of your escrow funds and may even potentially be able to recover damages obtained via losses from an unforthcoming Seller.
8. Managing your Finances when House Hunting
Before seeking to list our former farmhouse for sale, the Mr and I had begun entertaining a few major upgrades before listing. The thought was that it would aid the house in getting under contract quickly and increase the value. Win-win, right? Yet after speaking with our realtor, she advised us that it would be best to avoid any unnecessary large purchases within 3-6 months prior to the listing of our home.
The reason?
Just as you have the right to shop lenders to find the best loan and terms for your purchase, lenders have and regularly exercise the right to review your credit and payment history. No lender actually wants to take on a “risky” loan. As we were planning to purchase a home in the city following the sale of our farmhouse, if we had went ahead with large withdrawals to finance improvements prior to listing, it would have raised a red flag on our credit check to any lender looking through our financial history.
Tip!
Our realtor noted that generally speaking, it is best to avoid opening any new credit cards, purchasing ‘big ticket’ items, or amassing too much debt overall to your name / credit when looking to buy / sell a home as it may cost you your chances of being approved.
When it comes to home buying we find that there are a few basic principles that are immune to an ever-changing and evolving housing market. You should always follow your gut, your instincts are usually on point. Don’t find yourself with cold feet by committing to something prematurely. You have time. As much time as you need. Allow yourself to take it. Rushing into anything is rarely likely to yield the results you were hoping for. Lastly, always keep your finances in mind. No home is worth going into debt over, no matter how seemingly perfect. Don’t let yourself forget your ‘must haves’ and overpay. Though it’s hard, sometimes you just have to be ready to stand up and walk away.
Here’s to landing the home of your dreams!
~Christy