Buying real estate and or taking out a home loan is a significant milestone in life. Frequently, it means that a new phase is starting, whether it's a new job, a new relationship, or moving to a new area. However, when the most basic steps are missed, this transition can be fraught with stress and disaster. To ensure a smooth transaction, home buyers should be sure to mind the following tips.
By now, everyone is aware that the housing recovery is well underway; homeowners who once were “underwater” (owing more than their homes’ value) now have enough equity to sell, and possibly move up.
Even with this obvious recovery, there is still a shortage of inventory in most areas. This means that home sellers are often in the enviable position of entertaining multiple offers on their homes. Many buyers, however, have been through the disheartening experience of finding their “perfect” home, only to discover that they competed unsuccessfully with two or three other buyers in a sort of bidding war.
It is not likely that this state of affairs will change anytime soon. In order to succeed in this kind of market, buyers must adapt to the reality. If you are hoping to buy soon, here are three things you MUST do.
- Have a solid preapproval letter in hand. This means that your lender has reviewed your loan application package (including all the supporting documentation) and has issued a “credit approval.” Your realtor will include that preapproval letter with your offer. In effect, this preapproval letter says, “We have already jumped through the lender’s hoops to get our mortgage. Now we just need the purchase contract and appraisal to complete the purchase.” Most sellers today won’t even consider an offer without some sort of assurance that the buyer will be able to get mortgage financing. The stronger the letter, the better your chances of beating out the competition of a seller’s market.
- Make as large a deposit as you can. When you make your offer, you must include an “earnest money deposit.” This money shows you are serious, and is a requirement for a valid contract (legally, it is called “consideration”). While even a dollar would technically qualify, a larger deposit is far more desirable in the seller’s eyes. You are not risking a penny of this money; there are clauses in the purchase contract, “contingencies,” that protect your deposit. If for some reason you are not able to get the loan, or if the appraised value is lower than the purchase price, you will get your deposit back.
- Write a personal letter to the seller. While this may seem corny and unnecessary, you should remember that buying or selling a home is one of life’s most emotional experiences. The letter you write to the seller to include with your offer will show the seller that there is an actual person—perhaps a family—buying their home. Don’t be hesitant about mentioning the beautiful garden, or how much your 8-year-old daughter loved the kid’s room. Will this make the seller accept your offer over the competition? Maybe, maybe not—but there is no risk at all to take the time to do this. One family we helped once wrote a letter like this (complete with photos of the five of them). The seller was considering no fewer than six offers. The sellers read the letter and said to their agent, “This is the family who should own our home.” Their offer was not even the highest or best of the six—but they won.
There is one thing you should not do: do not get too attached to any one home before a seller has accepted your offer. With today’s competitive market, you should keep in mind that other buyers may prevail; but if you stick to the process and keep your goal in mind, you’ll succeed.
Remember that a house is just a bunch of sticks nailed together, sitting on a big piece of dirt. Once a family moves in and fills it with noise, energy and love, then it becomes a home. And that is what is perfect.