It’s early February, and the spring market is already here. Interest rates are creeping up, with predictions that they may hit 5% by year’s end (note that a 1% increase in the mortgage rate translates to a $720 increase in your annual mortgage payment per $100,000 of loan…so a $400,000 loan would cost you almost an additional $3,000 annually). With the mild winter, we are seeing more people out looking, and inventory levels remain low, ridiculously so in some areas. Since the first of the year we are seeing what available inventory there is on the market, go under agreement. If you are serious about buying a home, now is the time. If you plan to wait until March or April to get serious, be prepared…more inventory also means more buyers (and more competition). Fasten your seat belts and read on for my six tips on how to put yourself in the best position to obtain the house of your dreams.
1. Get Pre-Approved
This may be the single most important item on the list. If you don’t have a pre-approval, you aren’t really in the game. No seller will look at an offer today without a buyer pre-approval. It’s just the way it’s done.
- Note that a pre-approval and a pre-qualification are not the same thing. A pre-approval is what you need, and it will require talking to your lender and may involve providing some actual documents to support your financial position ~ it is more than a casual conversation with a lender about what you might be able to afford. The pre-approval will give you an idea of what the bank will be willing to lend you (although a pre-approval does not guarantee you will get a loan) and will show the seller that you are a qualified buyer.
- If possible, your pre-approval should state that you do not need to sell an existing home in order to get a loan. This will, naturally, be dependent on your financial situation, but it will make your offer much more attractive if your qualifying for a loan on your new home is not contingent on you selling your current home.
- Just because you are pre-approved for a certain amount doesn’t mean you have to buy a house up to your limit. Make sure you think about what you are comfortable spending, not just what the bank is comfortable loaning to you…they may not be the same thing. Also, before extending an offer on a property, make sure you understand all the costs associated with it beyond your mortgage payment. What are the property taxes like (this information is readily available on the listing sheet)? Are there HOA fees (this is not just for condos, some detached homes come with HOA fees)? And while you may love the pool, make sure you understand what a pool costs to run and maintain.
- Refrain from making big purchases, changing jobs, moving money around, etc. prior to buying a home. Banks like to see stability and no big changes leading up to your purchase.
2. Understand What You Are Looking For in a House
This may not be 100% apparent at first, which is why you want to initially try to see as many houses as you can to help narrow down what it is you want.
- Spend some time thinking about your priorities and your deal breakers. Have these discussions with a partner/spouse who is purchasing with you…you will not agree on everything, but understand where each of you are willing to compromise and what the most important things are to each of you. Are you willing to do work on a house? Do you need to be close to commuting options? Do you want a big yard or a small yard? How many bedrooms do you need? What towns are you interested in? Is there a particular school district you want to be in? Have some conversations up front so you know where you both stand…but be flexible too. You will never, ever find a house that checks off every single box, no matter what your budget (the more budget we have, the more we tend to want). Be ready to compromise…with each other and with the available inventory.
- While open houses can be a great way to get started, once you become more familiar with the market and the inventory, you really should work with an Realtor. A good agent will watch the market for you…agents have access to MLS listings before they appear on some of the popular websites like realtor.com and Zillow. More importantly, an agent will also have information about listings before they hit MLS, sometimes weeks in advance. Sometimes listings sell before even making it to MLS. In a competitive market, you want to have all the advantages possible ~ you want to be the first person to hear of a new listing and the first person to get in to see a house ~ it may make the difference between getting the house and not. Besides helping you to see homes, an agent will help you to negotiate an offer when the time comes, being aware of comparable sales and what is happening in the market. They will also help you through the process from offer and acceptance to closing. In today’s market sellers still generally pay the real estate agent’s commission…why not take advantage of a Realtor’s services?
- Make sure any decision makers are prepared to see a house ASAP. The best houses go quickly. Do not assume that if you see a house on Wednesday that you can wait until the weekend for your spouse to see it. Do not even assume you can wait until Thursday for them to see it. Be prepared to do what it takes to see a house that you think is a contender. Consider whether a spouse can see the house via FaceTime if necessary. Be prepared!
3. Have Your Deposits Ready.
In Massachusetts this is a two-step affair.
- When you make an offer be prepared to write a check for $1,000 to $2,000 (this can be more, but basically it is a nominal deposit). This is money that shows the seller you are serious. This can be a personal check.
- In Massachusetts, after you have an offer and acceptance and the inspection has been completed, you will sign a purchase and sale agreement…at this time you need to be prepared to hand over an additional deposit bringing the total deposit to (generally) around 5% of the purchase price. This too can be a personal check. If you are buying a $500,000 home and have already put down a $1,000 deposit, you will need to write an additional check for $24,000.
4. Be Ready For the Next Steps.
Most of us don’t buy a house every day, so even if we are not first-time home buyers, we may not remember all the things that need to happen between offer & acceptance and closing. Tip: Don’t make an offer on a house and then head out of town for a two week vacation…
- As soon as you have an agreement you will need to set up a home inspection for the property. While this is optional, it is highly recommended, even with new construction. The inspector will look at the exterior of the house, the major systems, and they can test for radon, pests, etc. The cost varies, and is the responsibility of the buyer. You can talk to friends or family for a referral; your agent can also give you some recommendations. Expect to have 7-10 days to get all inspections and testing completed. You should plan to attend the home inspection.
- Once the inspection is completed and any issues have been resolved/negotiated, it is time to sign the P&S. This is drawn up by the buyer’s attorney (if you don’t have one, your agent can usually recommend someone). The P&S is usually signed within a few weeks of the offer, sometimes less (remember, this is when the additional deposit is due). Signing can be done electronically.
- Once the P&S is signed the buyer is expected to turn in their loan application…usually no later than the next day. Before the P&S you should already be talking to your lender to get the (loan application) ball rolling.
- Closing…timeframe for this can vary, but anywhere from 45 to 75 days, sometimes more, depending on the wants and needs of both buyer and seller (this should be negotiated as part of the offer). There is a lot to sign and initial at closing and this is easiest done if you are present, as opposed to being done remotely. You will need to bring a bank check (not a personal check) for the balance of the money you are putting down on the house.
5. If You Have a House to Sell, Get it on the Market Before You Buy.
This is a big concern for many sellers in today’s market as they don’t want to sell their house without having a house to go to…however…
- Do you really want to run the risk of carrying two houses? While you may think that if you put your house on the market it will sell tomorrow, you never really know. Better to list it now, and then negotiate for a longer closing date if you sell quickly.
- Selling your house will help light a fire to make a decision on a new house. Sometimes buyers just cannot get off the fence. Yes, it is an important decision, not to be made lightly, yet at the same time do you really want to be looking at houses for the next three years?
- The market is hot right now for sellers…why not take advantage of it and get the best price for the house you are selling?
6. Keep it All in Perspective.
Despite all the previous urging to “be ready,” to list your current house, to make a decision…in the end, you also need to keep it all in perspective. It is very easy to get caught up in the mania of the real estate market. In the end, you have to trust that it will all work out. Sometimes a house you lose out on maybe just wasn’t meant to be…not to get all “new-agey” on you, but sometimes the right house might still be waiting for you. When I was looking for a new home a few years ago, I found a house that I thought was perfect, but before I acted it was gone. I beat myself up about it for weeks…and then the house I ultimately bought came up for sale. And it is a much better house for me than the house that I thought was “meant” to be mine. So trust a bit…it will happen. Just do your part to be ready when it does.
If you have any questions about buying or selling a home, if you are interested in learning what your home is worth, or if you have any questions about real estate in general, please give me a call (508-308-4436), send me an email (Lvandore@LandmarkNE.com) or send me a message via Facebook. I would love to help you!
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