After more than a decade of relocation due to medical school, residencies, and international scholarships, Abhi Kole, MD, PhD, is ready to put down roots. But he’s learning that buying a home in today’s housing market is easier said than done.
Over the past 6 months, Kole, an internist at Grady Hospital in Atlanta, has made offers on three homes. None resulted in a purchase. Kole says he’s learned to be more competitive with each subsequent offer, starting with an offer significantly higher than the asking price and giving up his right to an appraisal or financing contingencies.
The experience was surprising and disappointing.
“I knew the market was bad when I started looking and house prices had gone up,” Kole says. “What I didn’t realize was that it would still be so difficult for me. I have a good job, no debts and good credit.”
Another frustration for Kole: He was approved for a doctor’s loan (a type of mortgage that requires a lower down payment and doesn’t count student loans in debt-to-income calculations) from a national bank, but the sellers seem to prefer buyers who work with local lenders. Kole was willing to forego the appraisal and the possibility of a mortgage on the right home, but he is holding back from forgoing the inspection, a trend some other buyers in his area are following.
“With each house, I learn more about how it works and how much risk I can safely assume,” Kobe says. “There are some things I definitely wouldn’t give up.”
Kole’s experience mirrors that of millions of other potential buyers navigating a strong seller’s market.
“Potential buyers are really facing a triple threat right now,” says Clare Losey, assistant research economist at the Texas Real Estate Research Center. “There is strong home appreciation, high mortgage rates and a low inventory of homes for sale.”
Finding — and buying — your dream home is always possible, even in today’s challenging market. Here are some important steps that can help you.
1. Don’t low ball.
There may be instances where you can save money by bidding significantly below the asking price on a property. However, since most residential areas of the country have a seller’s market, you run the risk of offending the buyer or being dismissed as not having a serious offer.
In today’s market, a better strategy is to offer a near-your-best and final offer up front, real estate agents say. It may also be worth forgoing assessment or the possibility of funding, although it is important to understand the risk associated with this. Last month, the average home sold for 103% of list price, according to data compiled by Statista.
2. Prepare the credit.
The better your credit, the easier it will be for you to get a mortgage and the lower the rate you will pay for the loan. The average first-time home buyer has a credit score of 746, according to a recent article by Fannie Mae. If you know you’re going to buy a house in the next few months, you can improve your credit by making sure you pay all your bills on time and avoid taking on new debt.
This is also a good opportunity to check your credit report (get all three reports for free at AnnualCreditReport.com) to see if there are any errors or other issues that you’ll need to address before applying for a loan. Also look at your credit utilization ratio (the amount of credit you use compared to the amount you have). Experts recommend keeping this number below 30%.
3. Prepare to act quickly.
Among homes that closed in March, the average days on market (the time from listing to closing) was just 38 days, according to Realtor.com. In busy markets, homes move even faster, real estate agents say, with sellers typically accepting offers within days of their home listing.
“It’s crazy,” says Sarah Scattini, president of the Reno/Sparks Association of Realtors.Scattini. “The market moves extremely fast here. If you put your house up for sale, your sale is pending within 5 days.”
In addition to acting quickly to make your initial offer, do the same if a buyer retaliates with negotiation. A quick response will show the buyer that you are very interested and will beat out any other bidder who has also received a counter offer.
4. Shop around for mortgages.
Especially for first-time home buyers, the process will go a lot easier if you have a team of professionals to help you. Look for a real estate agent and mortgage lender who has experience with first-time home buyers and with doctors, if possible.
Since mortgage rates can vary wildly, you’ll want to shop around a bit before choosing a lender. Get quotes from a local lender, online lender, and possibly a credit union or mortgage broker to get an idea of the types of mortgages and rates available to you .
“With multiple offers on each listing, you really want to align yourself with a great real estate agent who can negotiate for you on your behalf and guide you through this very tricky market,” says
For both your real estate agent and your lender, you will want to know in advance how they are paid and how they calculate their fees. Typically, buyers’ and sellers’ realtors split a 6% commission on home sales, which means your realtor will likely earn 3% of the purchase price.
5. Get pre-approved.
Once you’ve chosen a lender, getting pre-approved for a mortgage can make your offer more attractive to potential buyers. Pre-approval is a thorough process in which lenders pull your credit and review other financial factors, such as your income and assets, to tell you in advance how much you could borrow by their standards and how much it might cost you.
These days, a large number of buyers are coming in with a cash offer, which was once considered very attractive to sellers. However, pre-approval helps even out buyers and, as one salesperson noted, “it doesn’t matter if it’s cash or a mortgage, as long as I get the money.”
If, like most homebuyers, you need a mortgage to finance the purchase, pre-approval can provide some assurance to sellers that your offer won’t fail because you can’t qualify. mortgage you expected. Once you have received pre-approval, do not open any new credit accounts. If your credit score drops, the amount you can borrow could also drop.
6. Refine your budget.
Although the pre-approval process tells you how much a lender thinks you can afford, it generally makes sense to set your own budget as well. This is because banks and other mortgage lenders may approve you for much more than you want or are able to afford for a home.
You’ll want to consider future homeowner costs as well as any other expenses (current or future) that the lender may not have considered. For example, if you plan to have children soon, you may want to reduce your budget to account for the cost of childcare.
Knowing your budget ahead of time ― and only looking at homes that fit within it ― will prevent you from falling in love with a home you really can’t afford.
7. Stick to it.
Buying a home in today’s market is not an easy task. The first part of the process is simply to look at several homes to get an idea of the scope of your budget and if there are any homes that meet your needs.
If you’re certain that buying a home is the best financial decision for you, don’t give up. Instead, ask yourself if you can make any adjustments that could expand your pool of potential homes. This may mean changing your budget, moving a little further geographically, or opting for a house that needs a little more work than expected.
That said, while the pace of price increases is likely to moderate, prices are unlikely to fall significantly in the future.
“We could see house price appreciation drop to levels close to 10% to 15% [from 20% last year] or even just 5% to 10%,” Losey says. “When you do the math, house prices just can’t keep going up 20% year over year.”
Kobe plans to continue looking for his home for at least the next few months.
“Prices continue to rise, but we’re hearing that inventory will rise over the summer,” he says. “I’m still looking for the right home, and I’m ready to make an offer.”
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