Buying a home for the first time in some U.S. markets is becoming increasingly challenging. In competitive housing markets, the supply of available homes is tight, which means sellers often have the upper hand and home prices are rising above what is typically considered their fair value. If you are contending with a seller’s market, here are four tips to help avoid overpaying for your first home:
Tip #1 – Do your homework.
Before you are ready to become a homebuyer, study the market. Check out the neighborhoods you like and attend open houses. Get a feel for what’s currently available and price ranges for various types of homes. Pay attention to the cost your list of must haves – whether it’s a finished deck, a certain type of hardware or hardwood floors throughout. Getting every item on your list may not be realistic for your price range, so be prepared to re-evaluate after seeing a few options.
Tip #2 – Set a budget and stick with it.
It can be tempting to go over budget in a highly competitive market. However, doing so can have ripple effects on your cash flow. Be realistic about the price range that works for you. Review your monthly budget and figure out what you can afford in terms of monthly payments (for principal, interest, property taxes and insurance) on the home. Know what you have available for a down payment and determine the price range of houses that fits your budget.
Tip #3 – Find a reputable realtor.
Look for a quality realtor who can help you feel confident throughout the process. A good realtor should take the time to truly understand what you are looking for in a home, the neighborhoods you prefer and your price range. He or she should also be familiar with the current state of the housing market where you want to live and suggest strategies to make your offer attractive.
Tip #4 – Find ways to appeal to sellers.
To keep the price within your reach, consider ways to sweeten your offer. This could include agreeing to a faster closing period, offering to pay closing costs, or, if you are able, making a cash purchase (no mortgage process required). Even writing a letter to the sellers detailing why you want the home could make your offer stand out.
As you prepare to purchase a home, consult with your financial advisor as well. He or she can help you plan the financial side of your home buying strategy so you can make a reasonable offer with confidence that doing so is aligned with your other financial goals.