A Soup-to-Nuts Guide for Spring Homebuyers
Rebounding housing prices are making the market tricky territory for buyers to navigate. While it stood stagnant for several years after the housing bubble popped, today's market is robust, particularly in suburbs of major metropolitan areas. Competition will be fierce among those looking to purchase new digs during this year's spring home-buying season, but there a number of ways sellers can be persuaded to accept an offer below their asking price.
According to a March survey by Fannie Mae, 41 percent of buyers expect home values to increase over the next 12 months. The sound of a promising investment has a lot of consumers looking to broker a deal in the near future. But inventory in the housing market is limited. Coupled with aggressive competition, that presents a host of challenges for prospective buyers.
Arguably the biggest handicap is it's no secret it's a seller's market. Home prices throughout the country saw an 8.1 percent jump in January compared to last year, marking the largest hike since 2006.
Consider these expert-recommended tips on how to purchase the home you want at a reasonable price:
Know your creditworthiness. Before diving into your search, check your credit report for errors. Consumers are entitled to one free report per year at www.annualcreditreport.com. The process for fixing mistakes can be time-consuming, so it's important for buyers to looks at their credit history several months before starting their housing hunt.
If your credit isn't up to par, devote time to paying off bills and revolving credit card debt. Those with a credit score of 700 or above typically get a better interest rate on their mortgage, so it may be worth waiting until you inch over that hump before applying for a loan, says Brendon DeSimone, real estate expert at Zillow, an online real estate database.
Get preapproved for a mortgage. Many buyers make the mistake of browsing houses before applying for a mortgage. "There's no point in driving around the neighborhood to look at houses without seeing a lender first," says Frank Donnelly, a certified financial planner and chairman of the Mortgage Brokers Association of metropolitan Washington, D.C. By doing so, buyers can determine their price range and avoid wasting time looking at properties they can't afford. It's a good idea to obtain offers from at least three lenders prior to choosing one.
In today's market, being preapproved for a loan is a must; being prequalified, by which applicants receive a good-faith estimate of the fees and costs associated with their loan offer, won't do much good.
Find a Realtor you trust. Consumers who house shop without a real estate agent or Realtor put themselves at risk, largely because a typical homebuyer doesn't have contacts in the local industry to know what homes are for sale that aren't publicly listed. Friendships between Realtors also work in the buyer's favor. Michael Corbett, Trulia's real estate expert and author of "Before You Buy!", "Find It, Fix It, Flip It!" and "Ready, Set, Sold," says most buyers don't know the tricks to brokering a deal, which can ultimately cost them a lot of money and aggravation. Says Corbett: "Buying a home is one of your major purchases in life. Why would you want to do it without an expert guiding you? That's like saying, 'I'm going to do my own brain surgery so I can avoid a hospital bill.'"
Decide where you want to live. "When you buy a home, you're not just buying a home--you're buying a neighborhood," Corbett says. Everyone's needs vary, depending on their stage of life: Couples raising a family care about the school system, safety and job opportunities; singles pay close attention to entertainment, nightlife and the percentage of unmarried residents; and retirees survey the nearby hospitals, senior care and recreation activities, such as golf or tennis.
Thanks to a variety of online resources, evaluating these characteristics is relatively easy. Trulia.com, Zillow.com and Realtor.com are good starting points for general information. Those looking for a breakdown of a town's crime rate can use NeighborhoodScout.com's detailed crime maps. Gauging the dating scene requires just a quick search for "best cities for singles." For other areas of interest, like entertainment or activities for retirees, homebuyers are better off contacting state or local community boards.
[Read 10 Rookie Home Buyer Mistakes to Avoid.]
For this step in the process--with so much data at your fingertips--it's particularly important to have a Realtor by your side. "The data is accessible, but it's easy to misinterpret it," DeSimone says.
Peruse your options. This is the fun part. Start by scanning the Web for homes that pique your interest. Listings without photographs are easy to eliminate, as they're usually an indication the property isn't exactly visually flattering. Savvy smartphone users can drive around their desired neighborhood and use a mobile app like Trulia's, which pinpoints their location through GPS and pulls up information on nearby houses for sale, open houses or recently sold homes. With low inventory and buyers ready to pounce, get in the habit of checking for new listings every few days.
Price check. Sellers use comparable homes to determine their asking price, but buyers can use them to help determine a property's fair market value. Focus on those that have sold within the last 60 days, says Corbett.
Many people mistakenly review asking prices of nearby homes on the market when determining their offer. "Anyone can ask any price for a home, so don't get bogged down by looking at what's currently on the market," says Ray Boss Jr., a realtor in Gaithersburg, Md. Still, it can be beneficial to look at what houses have been sitting on the market for a while, since Corbett says there's a reason why they're not selling.
Do a full inspection. Even though it's a competitive market, don't feel pressured to skip the inspection. It's a critical step for both ensuring the home is safe and uncovering any areas that will require renovating. If you're making an offer, Realtors advise clients to make it contingent on a satisfactory home inspection.
A general home inspection typically costs anywhere from $300 to $600, although companies may charge more for large homes due to the extra square footage they have to evaluate. However, Corbett cautions that a general inspection doesn't cover everything.
Frequently, roofing, chimneys and sewer lines aren't included, as most general home inspectors aren't experts on those areas. Certain regions also require geological inspections. For example, in California, a large number of buyers pay for an inspection of the soil conditions of the property, how the home was built and the age of the house, since those factor into how risky the home is in terms of damage from an earthquake or other natural disasters. "I'm all for spending a little more money for all the inspections you need," Corbett says. "You can have a 50-foot sewer line all the way out to the middle of the street, and it could have an enormous break in it; you want an inspector who is going to stick a camera down there."
[Read How to Insure Your Home Against Hurricanes and Other Natural Disasters.]
Inspections that reveal needs for improvement can be used as leverage by the buyer at the closing table. Many times, a seller will agree to lower the price of the home or offer a credit to cover some of the closing costs. However, Boss says, "Don't expect you'll get that $10,000 credit you want, but do what you can to convince the seller it's a reasonable request."
Discuss closing costs ahead of time. They vary by market, but closing costs typically range from 1.5 to 4 percent of the purchase price. These costs can add up significantly, to an amount some budgets may not be able to bear. DeSimone recommends asking for an estimated statement of the closing costs well in advance. By law, buyers are to entitled see them, which gives them the opportunity to question ones that seem inappropriate or unreasonable.
DeSimone says simply because people here the word "closing" doesn't mean they should wait until the close period to discuss the costs. "You don't want to go in there blindly to that final table," he says.
Present your offer. If you've done your research, consult your Realtor to determine your offer. Although there's less room today for negotiating the purchase price than in the last few years, Boss says, "Ultimately, the market value is what a buyer's willing to pay and what a seller's willing to accept." For you and the seller to be able to reach an agreement, don't make your purchase contingent on the sale of your current home. "It was fine when the market was at the bottom, but people don't look at those offers right now," Corbett says. "That's one way to kill a deal." Also, be reasonable: Homebuyers who are willing to make minor concessions appear more desirable to sellers.
Set the down payment. Most lenders and housing experts say homebuyers should put 20 percent down. Corbett highlights several reasons for this figure: You instantly gain a little equity, you get a lower interest rate on your mortgage and you're "viewed as a more serious, more qualified buyer when you're competing with other buyers for a property." However, it's also important to set aside enough for a sufficient rainy-day fund.
[See 10 Secrets of Off-Season Home Buying.]
Claim your tax benefits. Some of the deal's closing costs are generally deductible, says Mark Steber, chief tax officer at Jackson Hewitt Tax Service, but they're not always the costs consumers assume will be deductible. "Many new homeowners think they can claim all their expenses of buying their home on their tax return. But, most of the cost of business expenses, like the title insurance, attorney's fees and commissions, are not tax-deductible," he says.
To get the most from your tax refund, Steber cites these three deductions:
-- Interest. The pro-rated interest for the remainder of the month from closing until the end of the month
-- Real estate taxes. The pro-rated taxes for the time the buyer owns the home that may be paid at closing
-- Points paid. As long as the points are a general practice in the area and within the average points for the area, they are deductible as interest
The bottom line. "You need to be able to spot a good deal when you see it and you have to be able to move forward on it quickly when you do," says Corbett.
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