How to Stay Competitive When Shopping for a House in a Hot Market
When the number of interested homebuyers strains the available inventory, real estate professionals call that a seller’s market. The U.S. housing market continues to put sellers in the driver’s seat, and prospective buyers face stiff competition. Although growing families may not necessarily hold the best bargaining hand, it’s important to remember that you are not competing with sellers. It’s the other potential homebuyers you are negotiating against to secure your dream home.
The good news is that a seller’s market does not necessarily place you at a disadvantage. By preparing yourself before house shopping and learning a few key strategies, you can move to the front of the line. If you want to know how to stay competitive in today’s hot housing market, these strategies will help.
Conduct Thorough Financial Due Diligence
In all likelihood, you will need to secure a mortgage to purchase a home. This usually means saving a down payment as high as 20 percent or leveraging one of the lending programs that allows you to use a lower amount. Before applying for a mortgage, it’s crucial to check your credit score and improve that three-digit number if possible.
Start by requesting a free copy of your credit report from the three major bureaus — Equifax, Experian, and TransUnion. Credit bureaus are mandated to provide you with a free copy once annually. The reports can be requested at www.annualcreditreport.com by filling out the online forms. Review the information and have any errors or omissions corrected.
Consider paying down outstanding credit card balances or personal loans. Part of your credit score is based on debt-to-credit availability limits. These efforts improve scores and open doors to lower interest rates, more affordable mortgage programs, and favorable terms. Improving your credit score is the first order of business when buying a home.
Secure Mortgage Pre-Approval
In highly competitive housing markets, sellers enjoy the luxury of fielding the highest offers. But their real estate professionals will likely explain that the best offer is one that comes to fruition. And home shoppers who possess the backing of a lender capture a competitive advantage.
Sellers generally do not want to risk losing an offer at or above the asking price. People with a mortgage pre-approval simply need to complete the loan paperwork. Those without a lender’s support are perceived as too risky. Getting pre-approved for a mortgage before house hunting is an excellent bargaining chip.
Know How Much House You Can Afford
When potential house buyers try to “guesstimate” how much they can afford, the results are often less than perfect. Lending institutions may not see your ability to repay the mortgage based on debt-to-income ratios and creditworthiness. That’s why it’s important to know precisely how large of a mortgage you can secure and how that fits into your monthly budget. Real estate and lending professionals typically advise community members to budget for a mortgage payment that takes up no more than 28 percent of their net income.
Conduct Online Searches & Compare Options
There are a number of excellent real estate platforms available for house shoppers. These websites usually provide local and regional search options. If you haven’t already, you’ll find filters that narrow searches down by price, the number of bedrooms, bathrooms, total rooms, acreage, and others. Spending time researching the availability of homes that fit your needs helps build a shortlist. Once you have a handful of the best options in hand, schedule walk-throughs. Given that other buyers are also champing at the bit to buy a living space, promptly make a strong offer if the house checks all your boxes.
How to Make a Strong Offer
People who do not work in real estate generally think a strong offer is simply a professional way of saying “highest bid.” While the dollar amount plays a substantial role, understanding the fine details of an offer can distinguish yours from others.
For example, the amount of earnest money you put forward speaks to your credibility as a buyer. It’s not unusual for homebuyers to provide 1 percent of the offer in good faith. But sellers are more inclined to notice the bid if it involves 3 percent or more of earnest money. They understand that if you cannot follow through with the purchase, they usually keep that cash for their trouble.
Another strategy to make your offer more competitive involves shrinking the timeline. Transactions can take months to close, and sellers generally do not like being left in limbo. If you possess pre-approval and the house is within the mortgage threshold, consider accelerating the closing date. By working with a local lender, house inspector, and real estate professional, you may be able to schedule a closing date within weeks. Anything less than 30 days helps strengthen the offer.
Although the competition to purchase your dream home might be challenging, preparation remains a key to success. Winning ways begin with improving your credit score, securing mortgage pre-approval, and being ready to make a strong offer when you find the right home.
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