The current housing market is one of the most competitive in decades, with record-high prices and record-low inventory. Houses in the Mansfield area are selling above asking price and sometimes by tens of thousands of dollars and appraisals have generally confirmed the selling prices with a few exceptions. You may find yourself making many offers on many properties or a party to a multiple bid situation, and have not had one of them accepted. It can be very discouraging and maddening, especially when you feel you are doing everything right. We have several tips and strategies we use to make sure our clients are the winning bidders. Contact us to discuss how these strategies could work for you.
As local experts who sold over 250 properties in 2021 and worked with a slew of first time buyers, here's our thoughts on how to successfully buy a house:
Put Your Best Financial Foot Forward
Come armed with a preapproval from a lender. This is different than a prequalification and is preferred, especially in a market where you are competing against other buyers. A lender will take an application from you and using your current income and debt situation, tell you how much purchasing power you have at the current interest rates. Overall your total debt to income ratio should not exceed 43% and according to FHA, your housing costs should not exceed 31% of your income, however, there are many programs that do allow buyers to exceed those ratios, but it’s important to consult a qualified mortgage advisor to understand your options. For most buyers, individual comfort level with a monthly payment for a home will often override government or loan program limits. Mortgage rates are driven by credit scores; the higher your credit score, the better chances you have of getting the best options. For an initial idea, you can check this mortgage calculator in the very beginning stages of your search.
Line Up Cash
The more cash you can pay up front toward your home, the less you will have to borrow. A bigger down payment means your monthly payments will be lower and you will pay less interest over the course of your mortgage. If you can afford to put down 20 percent or more of the total home price, you can avoid private mortgage insurance. Private mortgage insurance or PMI is an insurance policy that you, the buyer, purchase on behalf of the bank so that they have protection if you don’t pay your loan and they lose money on a foreclosure. Government loans like FHA, USDA and VA have alternative costs called Guarantee Fees which serve the same function. The cost of PMI varies based on the loan program, your credit score, and your down payment amount. In some cases, it can be quite inexpensive, in other cases, it can add hundreds of dollars a month to your payment. Your mortgage advisor should be able to help you identify the best option for your situation and help you understand the PMI costs of your loan, how long they will last, and how you can get rid of them in the future, after you’ve owned the house for a while. But don’t use all your money toward a hefty down payment. Lenders will want to see that you have some reserves in the bank. Closing costs typically add up to thousands of dollars, an average of $7,302.98 in CT according to Bank Rate, which conducts a survey of closing costs nationwide.
Also, in order for your offer to be accepted in a multi-bid scenario, your offer may contain contingencies that can be inherently risky, such as a waiver of inspections which may add to your costs as a homeowner, should something arise later that needs repair or remediation. Plan for other costs involved in a home purchase, moving expenses, new furniture, or appliances and other improvements that you may want to make in the future. Try to maintain a cash cushion for these later expenses.
Choose a Town or Neighborhood
What makes a good neighborhood? The answer to that question is going to be different for everyone. But you can quickly narrow your choices by focusing on some key factors: Where can you afford a home? Are you working from home or commuting? Do you want to be near good schools, hiking/biking trails, public transportation, family, colleges, good shopping? How important is walkability? Talk to friends and co-workers about where they live. Then, spend some time in the towns and neighborhoods you’re considering, checking out shops, restaurants and public spaces to get a better feel for the place.
Have your agent set you up on a MLS search that notifies you immediately of any new properties in the town or area that may come onto the market that meet your criteria. You can also set up a search on this site that will deliver results to you based on your preferences. Check out our 1 Day on the Market search and Coming Soon on HST, where properties in the early stages of preparation for the market are posted.
Do drive-by's of the home and the entire neighborhood. You may love the photos and the style, but the not the hot mess next door. If you have time and you aren’t pressed by a potential bidding war, go in the evening and at different times to gauge the activity and noise level, if that is something you are concerned about. Don’t rely on professional photography to get a real feel for the property. Post-pandemic showings are in full swing and you can arrange for a private tour of the homes you are interested in. Be prepared to mask up and/or limit the number of people as requested or required depending on the current CDC recommendations. Your agent should inquire as to the status of the home, the showing activity and whether or not there are offers in place, why the seller is selling and any other relevant questions. Contact us for advice on writing winning offers.
Choose an Agent
Trying to work with the listing agent of a property is a strategy many online shoppers think gives them an edge, wrongly assuming that the agent will be eager for a transaction where they can earn all of the commission by working as a dual agent, representing both the seller and the buyer or you, as unrepresented. Frequently, listing agents may already have a signed buyer waiting in the wings and will have no loyalty to you as a first time inquiry. In this market especially, you need an agent to help you locate a property and help you negotiate a contract that will meet the seller’s objectives. At Home Selling Team we have trained and brainstormed extensively on ways to get our client’s bids accepted in the face of heightened interest and other offers. Being a represented client pays spades to a buyer.
Make An Offer
In a hot market, such as this one, there is little room for extensive negotiations and you have to be prepared to go all in, even though it’s your first offer. Try not to fall in love. It will likely come down to the highest and best offer. Your agent can provide you comps to compare value, which may or not be relevant if properties are selling at or above listing prices by several thousands of dollars. In other words, you are probably not getting a deal. It is important to remember that it doesn’t always end with the highest dollar bidder, terms can have a big impact, in certain cases.
Recently, at HST, our agents got together to comprise a list of tips and strategies to use to make sure that our clients come out the winning bidder or at least give it their best shot. I will share a few with you here:
Agree to pay for appraisal gap
Be flexible with closing date
Allow seller to rent back and/or leave personal property
Hire An Attorney
If your offer is accepted and you do not have attorney, ask your agent or lender for a referral. Both are likely to be familiar with many and you can choose who you are comfortable with. The fees are generally the same across the board in the same area. Your attorney will set the closing date and be responsible for giving you the final dollar amount that you’ll need to bring to the closing and in what form it should be.
Schedule Your Home Inspection
If you did not waive the right to inspect in your contract negotiations, you should move forward with your home inspection. Another tip that we at HST recommend is that you or your agent schedule the home inspection once you identify a property that you plan to make an offer on. If your offer is not accepted, you can cancel the inspection but the contract that comes in with a scheduled inspection is a stronger contract. At HST, we have a list of commonly used inspectors in the area, but you are free to hire any inspector that has been recommended to you or you have prior experience with. Plan on attending the inspection with the inspector and allow 2-3 hours to complete it. This is your opportunity to view the home thoroughly, without the presence of the seller, ask questions of the inspector and discuss recommended maintenance prior to receiving your written report.
Ultimately, the home inspection may reveal issues that are untenable and you will have to decide whether to move forward with the purchase and /or notify the seller of unsatisfactory results and negotiate repairs or financial relief. As a Realtor, I use “safe, sound and sanitary” as a guide to advising buyers on what to request for repairs of a seller. In other words, aesthetics are considered minor and would not be included in a formal request to repair. Click here for more information about what a home inspection entails.
Appraisal: If you are financing your purchase, your lender will require an appraisal to be sure the value is there before they lend you the money. In some cases, particularly when the property is unique to the area or challenging for some other reason, the agent will provide the appraiser with comparable sales to bolster their opinion of value. If your home over appraises, good for you, usually homes appraise for the selling price but lately there have been more under appraisals in this overheated market. The potential of a short appraisal is something you should have discussed when negotiating your offer. Consequently, your lender may reduce your loan amount and you may have to come up with the difference or the seller may have to reduce the price or you meet somewhere in the middle. Again, there should be a plan for this, should this occur.
Homeowners Insurance: You will need to purchase an insurance binder for the property. It will be a condition of your closing. If you have auto insurance now with a company you like, your best bet is to add a homeowner’s policy for usually a 20% discount and then you can look for other options after you close, if you want to look for better rates or coverage.
Final Walk Through: You and your agent will do a final walk through, usually the day before or the day of the closing, to be sure you are getting what was agreed to in the contract and nothing more (personal property you don’t want) or less (missing appliances). The property is to be “broom swept clean” meaning presentable but you will likely want to do your own cleaning, once you are the owner. It is not the sellers obligation to have the home professionally cleaned, unless that is in your contract. Your attorney will be notified that all conditions for occupancy have been met and there is no need for money to be put aside to repair or replace anything that the seller did not fulfill, as agreed in the contract.
Closing: Your closing may take place in person or electronically and not all parties to the transaction will likely be in attendance. As a Realtor, I attend the final walk through with my clients but only attend the closing if I anticipate a problem that will require me to advocate on behalf of my client. Following a "clear to close" issued by the lender, all functions involving the date and time of closing and exchanging of funds and paperwork are arranged by the attorneys involved in the transaction.
Once you have the keys and start your move, feel free to contact us for local vendors to partner with in your new adventure as a homeowner!