How to buy a home in a competitive housing market
Buying a home is an important goal for millions of people.
You might think a health crisis and economic recession would slow the housing market down, but in fact, many regions continue to be red-hot. Uncertain times can make competitive markets even tighter as current owners decide not to sell and new home construction slows.
A hot market occurs when there are more buyers than there are homes available for sale. Sellers may receive multiple bids for their home and sell very quickly.
So what's the best approach for those who are ready to make a move in 2020? Every buyer may have a different answer, but there are certain strategies that can help you buy regardless of market conditions.
Here are five tips to help you get the home you want:
1. Get pre-qualified for your mortgage.
Most buyers need financing to purchase a home. If you're in that group, getting a pre-qualification can be a crucial first step.
Pre-qualification empowers you to make smart decisions about your home-buying budget. You'll know how much you may qualify to borrow, how much you may be able to spend, and how much your monthly payment could be based on your income, down payment, and credit score.
To get pre-qualified, you'll need to provide your W-2s, paystubs, bank statements, and some form of identification, such as a driver's license. The specific list of documents will depend on your personal financial situation and the lender you're working with.
When you find a home you like, your pre-qualification letter may help you convince the seller to accept your offer over others. Most sellers won't even consider an offer without a pre-qualification letter unless it's an all-cash deal.
If you're not able to get pre-qualified, the process can help you find out what you need to do to qualify. You may need to increase your down payment or work to try and improve your credit score.
2. List your needs and wants.
"Needs" are non-negotiable features you must have in your next home. "Wants" are features you'd like to have but would be willing to compromise on. For example, you may need three bedrooms for your family, a home office, or a backyard for your dog. You may also prefer a two-car garage, air-conditioning, hardwood floors, or a specific location, but those extras are not necessarily deal-breakers.
Making a list of your needs can help you decide whether a home that's for sale meets your minimum requirements. If it does, you may be willing to sacrifice some of your wants to make an offer on the home. If it doesn't satisfy your list, you're free to move on to the next house.
The faster you can decide, the better chance you'll have to purchase a home in a hot market.
3. Stay in touch with your Realtor and Loan Officer.
Realtors stay on top of new listings so they can show them to their buyers. A showing may mean an open house, private tour, or digital tour of the home's interior and exterior. Digital tours can include photos, video, and even 3D images.
When your realtor sends you a new listing, try to look at it as soon as possible so you can make an offer if it meets your needs. If the home isn't open, you may be able to watch a video tour. You can also drive by the home and look at the neighborhood, street, and exterior of the property.
Staying connected to your loan officer allows you to ask any financing questions you may have throughout the process so that your prepared for any scenario and will allow you to act quickly when you're ready to move forward.
4. Make a strong offer.
When you buy a home, there are several ways to try to make your bid stronger than others the seller may receive.
Strategies include offering a higher price, making a bigger down payment, writing a "love letter" telling the seller how much you like the home, letting the seller choose the closing date, and limiting the number of contingencies you request.
Contingencies are requirements that must be met before the sale closes. Examples include a home inspection, appraisal, approval of financing, insurance, and the sale of the buyer's home.
Whatever strategy you take, make sure you’re putting your best offer possible on the table. In a competitive market, sellers will disregard offers that they don’t perceive as serious, especially when several others are on the table
5. Stay focused on your goal.
A hot market could mean that you “lose” a few homes you like to other buyers. In such a competitive market that's a normal part of the process.
If your first offer isn't accepted, try not to become discouraged. Talk with your realtor and mortgage professional about what you can do differently next time and how you can strengthen your offer. Consider modifying your list of needs and wants to open up your housing choices. Be patient and continue to make offers until you're able to buy a home that you love.