Even as existing home sales decreased by 7 percent in February, inventory lagged going into the busiest season of the year to buy a home. A 6 month supply is an indicator of a balanced housing market, but February’s existing home inventory hovered at the 4.4 month mark, paving the way for a seller’s market and competition among spring homebuyers.
Here’s how to prepare as a homebuyer entering into a competitive market.
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Get a loan commitment.
Even if you need a mortgage to purchase a home, a loan commitment is just as good as a cash offer. A loan commitment takes the pre-approval process a few steps further. After your lender runs your credit score and compiles a loan application with the information you provide regarding income, assets, employment, etc. you will be asked to provide supporting documents, including tax returns, pay stubs, W-2's and bank statements.
Once all of the information in your loan application is verified with those supporting documents, your lender can issue a loan commitment (even prior to finding a home to purchase) which indicates the amount of money being loaned, the interest rate that you are qualified for*, type of loan and period of time for which the commitment is good.
Though shopping for a home with a pre-approval is better than shopping without, a loan commitment gives you a consistent head start against other buyers. A loan commitment allows you to:
- Present the best offer on a property. In multiple offer situations, a loan commitment shows that you are a serious buyer and are ready to purchase.
- Have peace of mind. You already have a reliable commitment from your lender for your purchase.
- Act quickly. Having your loan ready prior to finding a home will allow you expedite the loan process.
*This is a qualified rate, not a locked rate. They are subject to change based on the market at the time you find your home to purchase.
Pick a driven agent.
Essentially you'll want to look for a real estate agent with a lot of experience, but more importantly, you'll need to look for someone with experience in the location and price range where you are looking to buy.
A good agent with extensive experience working with buyers will often have prior knowledge of homes about to be listed, will communicate with you quickly and get you in the door of potential homes as soon as possible.
Literally get your foot in the door.
If a property that you're interested in hits the market, you should schedule a showing within 24-48 hours. If you wait longer, you risk the possibility of a fast-moving buyer and a motivated seller sweeping the home out from beneath you.
Don't wait around.
So you love the home you just walked through; when should you make an offer? The same day, if possible. If you love what you see, make a good offer quickly or someone else might beat you to the punch.
Sell yourself as a buyer.
Tugging at the seller's heartstrings never hurts. In fact, a 2013 Redfin study found that a personal cover letter improved an offer's likelihood of success by 9 percent. So go ahead, write to the seller about how much your kids will enjoy the fenced-in backyard, how their newly-renovated kitchen will be perfect for your love of entertaining, etc.
A cover letter gives your offer a face and allows sellers to relate to you on a personal level, rather than financial.
Don't buy a house you don't like just because the price is right.
Homes in your price range are being bought up left and right, but don't let your fears of finding a home influence you into buying a home you'll later have buyer's remorse with. In your homebuying journey, you'll likely have to be flexible with some of your wanted features but not so much you should feel desperate enough to buy something you kind of-sort of like.
Make the best purchase offer.
In multiple-offer scenarios, your first offer needs to be your best. Come in with your highest price offer, in your home affordability range, of course. Now is not the time to haggle a price below market value, especially if you know there are more offers on the table.
Another way to make your offer more appealing is to make the seller's life easier. Ways to do so include refraining from asking for seller concessions and being flexible in terms of closing.
Overall, the best thing you can do in a competitive housing market is to get sound home financing and listen to the advice of your real estate agent.
Looking for more information about buying and financing your first home? Download our free Mortgage 101 Handbook, a great resource for first-time homebuyers.