A house is the biggest purchase most people make in their lifetimes, yet few people know much about the process. The current climate favoring sellers further complicates things, adding an element of stiff competition. With this in mind, here are six strategies that can help give you an edge in the home-buying process.
1. Get pre-approved for a loan
After you determine your budget (and if you need help with that, there's a great Fool article here to do that), get a pre-approval letter from a lender. Compare rates and terms from three or four lenders and request a pre-approval letter from the best.
A pre-approval letter is different from a pre-qualification letter. A pre-qualification letter is based on information you report to the lender, whereas a pre-approval letter is based on your credit report and income and asset information you submit to the lender. The pre-approval letter is the preferred document.
Since most sellers won't consider an offer without proof you can afford it, be armed with this letter before you shop.
2. Choose the right agent
When you start looking for a home, everyone you know will suggest the name of an agent for you to use. Finding an agent is easy. Finding a great agent takes some work.
Interview several agents and ask questions like:
- How many other clients are you currently assisting? Too many and that new listing will go under contract before you get a chance to see it.
- How can I be competitive in this seller's market? Many areas have programs that allow buyers access to the MLS database that will email you immediately when a new listing that meets your criteria comes on the market. If an agent doesn't offer to set you up on this type of system, you'll miss out.
- What tools do you use to help me find a great home? A great agent may offer to do a walk-through while you're at work and FaceTime or Skype with you.
- How can I make my offer competitive? Your agent should have a strategy that makes sense to you, not just advice to offer over asking price.
3. Identify your home criteria
Determine what is important to you in a home. Is the distance from work most important or the accessibility to other activities? If you have kids, are the local schools important? What about the home layout or yard size?
Identify your ideal home and decide which attributes are non-negotiable. In a seller's market, you may need to compromise on some of your wants, but don't consider properties that don't meet your identified needs.
4. Check out the neighborhood
In a rush to beat someone else to the punch for a great property, don't neglect playing detective for the property or it could cost you later.
Check if the property is in a flood zone. If it is, you'll have to pay extra insurance and deal with additional risk. Check Megan's Law and the local crime statistics. Run an internet search on the neighborhood and see if anything concerning or undesirable is unearthed.
On your navigation device, map out the route from your employer to the home during rush hour to see if there are major delays (this saves time from you actually driving the route).
Drive around the neighborhood and talk to neighbors you see outside. Most are friendly and willing to dish about the neighborhood (and sometimes the neighbors). They can also tell you neighborhood details your agent is ethically bound not to share (for example, information about the quality of the local schools). If they're not friendly or willing to share, that may be equally as telling.
5. Make a clean offer and know your limits
Your agent will help you check the comps for the neighborhood to make sure the asking price is reasonable. When you write up an offer, decide the maximum you're willing to pay. Don't go beyond that when negotiating, as there may be multiple offers that lead to a bidding war.
Make your offer as clean as possible. If the house has just been listed, the seller is unlikely to drop below the asking price, pay part of your closing costs, or fork out extra money for you to get a home warranty. If you want a warranty, buy one for yourself.
Also don't ask for too many additional things to convey, like window treatments, the washer and dryer, their pool table, and kids play sets. If the home gets bid up beyond your limit and you miss out, it's OK. There will be another listing.
6. Remember, it's business
It can be difficult not to get emotionally involved in a home purchase. While you may be inclined to start mentally arranging furniture and having coffee with that cool neighbor you met, it's wise not to get too attached to a property. You don't know if someone else may present the sellers with an offer they can't refuse.
Additionally, your home inspection may reveal issues that no longer make the property a wise choice. Again, there will always be another listing. Stick to these steps, and soon you'll be closing on your home and enjoying the joys of home ownership.