If you're in the market for a home right now, you're certainly not alone. Strong homebuyer activity has helped push home prices up by more than 30% since 2012, and competitively priced homes are selling in just a matter of days in many places.
However, if you're willing to do your homework and listen to those who know more about your local market than you do, it's still possible to get a great deal on your next home. Here are three suggestions to keep in mind before you begin house hunting.
1. Get approved for a mortgage before you start looking
It's certainly possible to start shopping for a home without starting the mortgage process, and in fact less than 10% of home buyers obtain a mortgage pre-approval before house-hunting. However, there are a few compelling reasons why obtaining mortgage approval is a good idea.
For starters, a mortgage pre-approval will let you know the exact amount you could get approved for, based on your credit, income, and other debts. This way you can narrow your search to homes you can afford, and avoid getting your hopes up by looking at houses that are out of reach.
Also, a pre-approval makes any offer you submit much stronger. A pre-approval letter lets a seller know that a lender has thoroughly evaluated your financial situation and is willing to lend you the money to buy a house.
Furthermore, it's important not to confuse a pre-approval with a pre-qualification. A mortgage pre-approval requires a credit check, verification of income and employment, and an analysis of the borrower's debts. It's essentially the entire mortgage application process. On the other hand, a pre-qualification is an estimate of how much you could get approved for, that is often based on unverified information that you submit. Needless to say, a pre-approval letter is a much stronger document, not to mention a more accurate assessment of your budget.
2. Hire a professional, and listen to them
Just like the pre-approval issue, it's certainly possible to shop for a house without hiring a real estate agent, but that doesn't make it a good idea. Many buyers think they can save money by going it alone, but that's not necessarily the case. First of all, the seller pays commissions to both agents involved in the deal, and there are some good reasons you need professional help with your home search.
First, a good real estate agent should have extensive knowledge about your local market and the current sales trends. If a house is priced right, he or she can tell you so. And, if a house is priced too high, your agent can give you a good idea of how much room you may have to negotiate.
On the topic of negotiations, that's another reason to hire a professional. Things tend to get personal if buyers and sellers speak directly, but real estate agents negotiate deals all the time, and good real estate agents are excellent negotiators. Plus, they don't have a personal interest in the property -- their only goal is to get you the best deal possible. In my personal experience, this alone has saved me more money than my agents have made in commissions, not to mention a world of aggravation.
Finally, my top reason I suggest you use a professional is that you'll have access to their contacts to help you with the rest of the process. Every real estate agent I've met has their "mortgage guy" who can do a pre-approval, a trustworthy home inspector they recommend, and contractors that can do any projects on your new home after closing. Just as a personal example, a house I bought a few years ago needed a small deck replaced. Every contractor I called quoted a price in the $2,500 range and said they couldn't get to it for another two months. When my real estate agent called his "guy," I had a new deck within a week, and at a cost of less than $1,500.
When choosing a real estate agent, it's important to be selective. Contact a few local agents who specialize in the neighborhoods you want to live in and the price range of homes you're looking at, and then meet several of them before committing. Real estate markets have different dynamics at different price points, so you shouldn't hire a real estate agent who specializes in million-dollar homes to help you find a $100,000 starter home.
3. Be ready to act fast
Another good perk of hiring a real estate professional is that they'll have access to many of the newest listings before anyone else does.
Unfortunately for you as a buyer, we're currently in a seller's market in many parts of the U.S., with the average home spending 5% less time on the market than this time last year. This means buyers' negotiating power is somewhat diminished, and homes are moving on and off the market quickly. In fact, my wife and I sold our home this July after it spent just a week on the market, and at close to our full listing price. Another Foolish writer sold his home in just two days!
Of course, there are many homes that sit for months on the market, and this is true everywhere. However, the good deals don't last long. Homes that are priced aggressively don't sit on the market.
You need to be prepared to act fast once a home you like comes on the market. Having a pre-approval in hand and a competent real estate agent definitely helps in this regard, so make sure that when the right home comes up, you're ready to pounce.
A good start
This isn't an exhaustive guide on shopping for a home, but it represents three of the smartest things you can do before you start house hunting. By getting the right paperwork, hiring the right professional, and giving yourself a sense of urgency, you'll have an advantage over your competing homebuyers.