Mortgage

Must you supply a home above the asking value? How a lot is affordable?

Making the right offer is crucial

Home sales have skyrocketed in recent years. At the same time, the inventory has decreased. This means that there is a strong sellers' market in many parts of the country with more buyers than real estate available.

The result is that home buyers often have to pay more than list price to beat the competition.

Navigation can be difficult.

It's hard to know how far too much asking price is "fair" – especially when you're under pressure to get a quote quickly.

You should set your budget and expectations ahead of time so that you know what to offer and when to leave. We'll help you find out.

Review your eligibility to buy a home (November 3, 2020).

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How much should you offer above the asking price?

While every listing and situation is different, it is very common to pay above the asking price. So buyers should be ready to think about it when making an offer.

“Sometimes listing agents deliberately rate a property below market value to make it a more compelling proposition,” said Philip Kranefuss, Head of Real Estate in Colorado at Homie.

“This causes a buyer to feed frenzy. And in these situations, it's not uncommon for the winning bid to be in the thousands above the list price. "

He says bids must typically be at least 1 to 3 percent above list price when there are multiple competing buyers.

Offers must usually be at least 1 to 3 percent above the list price if there are several competing buyers.

For example, if a home is priced at $ 350,000, an offer for profit could be anywhere from $ 3,500 to $ 10,500 above that.

Dustin Singer, a broker and investor, agrees with this theory.

"Most buyers try to bid a few thousand above the next higher competing bid to make their offer stand out and more to prevent sellers from taking it," he says.

But before you blindly increase your supply, do some homework.

"Have your agent ask the seller or the seller's agent what prices were declined," suggests Suzanne Hollander, a real estate attorney and broker.

"Another idea is to get the seller to write in the sales and purchase agreement that the buyer is offering a certain specified amount above the highest offer yet, if that type of clause is legal in your country," she says .

Check Your Budget For Home Buying (November 3, 2020)

Low Rating: The Risk of Over-Offering for a Home

Too high an offer can come back to haunt you.

"You may not be eligible for your mortgage loan because the loan does not value the amount you are offering," warns Hollander.

If the home does not value the full purchase price, you must find the difference in cash.

For example, the house is on sale for $ 300,000, but there are multiple bids. To win, offer $ 320,000.

However, the appraiser searches the area for comparable homes and finds that the highest reasonable price is $ 310,000. In addition to the deposit, you must pay $ 10,000 in cash.

Most home buyers don't have that much money to throw around.

Even if you do, you might lack the funds to make the post-move upgrades you want. You may also use up your emergency supplies for rainy days.

"And if you have to sell the property for any reason, including job loss, you may have to accept less than the amount you paid," adds Hollander.

Today's home buyers should expect competition

“In today's market, where there is more demand than supply of houses, a buyer often has to make an offer that is above the price to sweeten their business,” says Kranefuss.

"This is especially true if there are several competing offers or a bidding war."

Hollander agrees, saying, "Low interest rates combined with increased work from home have dramatically increased demand for single-family homes in many areas and reduced inventory levels."

"This increased demand and scarcity of supply give sellers the luxury of choosing the best deal they can get," she says.

In short, buyers in today's marketplace should expect competition. And they should be willing to pay above the ticket price for a house they really want – while it's still on budget.

This is how you determine your maximum budget

Estimate your maximum budget to determine the maximum price you should pay.

"Your maximum home budget should always be what you can afford," said Tyler Forte, CEO of Felix Homes.

"Set a monthly budget and make sure you include upfront costs like lender points, closing costs, and a budget for repairs and maintenance once you move in."

It can be helpful to work backwards and evaluate a monthly payment that you are happy with.

“For example, if you're barely able to afford a $ 1,500 monthly mortgage, everything is beyond your comfort zone. With this insight into affordability and your known interest rate, you can determine your maximum offer, ”recommends Hollander.

This mortgage payment calculator can help you estimate how much mortgage payment you can afford for your monthly budget.

When calculating your home buying power, remember that your mortgage should only be 30 to 40 percent of your monthly take-away pay, says Forte.

Find Out How Much House You Can Afford (Nov 3rd 2020)

Ask questions and define deal breakers

It's also a good idea to ask plenty of questions that can help you decide whether the home – and the higher price tag – is worth it.

"Strategically being what you want is crucial," says Kranefuss. As a starting point, he recommends asking yourself:

Is the place right for you? Is the house big enough? Is it a good school district? Are there things you want to give up when they are not at your price?

Overall, check that the price you have to pay to maintain the house exceeds its desirability and functionality.

"Just because the market is competitive and there are many multi-offer situations doesn't necessarily mean you should be paying above the asking price," says Singer.

He suggests finding out:

Is there another house for roughly the same amount of money that has better upgrades? Can you buy a home for a little less that needs updating and then get that renovation done?

Of course, there will always be some clear deal breakers.

"If during the assessment you discover structural or environmental problems that would be costly to fix, it is probably best to look elsewhere," says Hollander.

"And if the lender doesn't fund your purchase because the valuation is well below the purchase price, you may have no choice but to step back."

How to avoid overpaying for a house

Sometimes it's inevitable: you may have to first offer a higher price than expected or make a counter offer with a higher dollar amount.

But you also want to avoid making an unfortunate mistake.

To ensure you are not overpaying beyond the real value of a home, your agent should look for recently sold comparable properties.

"Just because a house sold above the asking price doesn't necessarily mean it was a reasonable price," warns Singer.

"Your real estate agent should scour the market for other currently listed active properties to ensure you are not paying beyond the features of the home."

Also, consider broadening your horizons.

"It is often advisable to broaden your search to include houses in cheaper locations where your dollar can go further," recommends Kranefuss.

Don't be afraid to check out homes that may be a little dated or in need of an update or two.

"These properties aren't going to have as much competition, and your listing price offer or less is more likely to be accepted," says Singer.

Other strategies for getting your offer for a home are accepted

Getting a seller to accept your offer doesn't always require a higher price.

“Instead, try to make a larger deposit in good faith. Sometimes this shows sellers that you have skin and are a more serious buyer, ”notes Hollander.

Before you can make an offer, you must also receive a mortgage pre-approval letter stating that you can afford to finance the purchase.

Better still, "Ask your lender to call the seller's representative and vouch for your financial health," advises Forte.

"The lender should state that they have checked your employment history and financial information and have extreme confidence in your financial strength as a borrower."

If you have the cash, you can try making a home cash offer. Cash buyers often have an advantage over buyers using a mortgage.

"A seller can feel more comfortable when a buyer definitely closes when it comes to a cash purchase for which there is no financing option," says Hollander.

However, there are also some drawbacks to consider when buying with cash. Therefore, make this decision carefully.

You could also try giving the seller a personalized letter with your offer explaining why you love the house, Forte adds. In some cases, knowing that the home goes to a person or family who values ​​it can be enough to influence a sentimental seller.

Finally, avoid including any contingent liabilities in the offer whenever possible. This allows your offer to stand out from the competition.

How to Maximize Your Budget for Home Buying

Do you need a bigger budget to afford a more expensive home? There are a few things you can do to make things better.

"First, save on as large a down payment as you can afford so you don't have to borrow too much money and don't have to get personal mortgage insurance," recommends Singer.

Also, try to improve your credit score and lower your debt to income ratio.

“Work on paying off outstanding debts, paying your debts on time, and avoiding opening new credit accounts. Also, check your free credit reports and clean up any errors, negative accounts, or missing payments that you see on these reports, ”Singer adds.

Also note that today's mortgage rates are helping home buyers maximize their budget.

When the interest rates are low, the amount you have to pay in mortgage interest each month decreases. This means that you can afford a larger mortgage payment and therefore a more expensive home price.

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