Get Ready for the Spring Market
The long and snowy winter certainly put a damper on the housing market the past few months, but with warm weather comes hot housing markets. Many homeowners are expected to put their homes on sale after waiting out the winter season. And potential homebuyers are expected to start their housing search. If last Spring is any indication, we should expect home prices to be high and for bidding wars to be common. We also just learned that the Federal Reserve will not be raising interest rates yet, but that they could in the near future. This could bring out even more buyers trying to take advantage of historically low interest rates.
As a first-time buyer this Spring, it will be a good idea to educate yourself and get to know the home buying process as much as a newbie can. Of course, to truly prepare yourself, you will want to take one of our Homebuying Classes, but we have also put together a list of things to be aware of if you’re thinking about jumping into the housing market this Spring.
Time is of The Essence
Once your offer is accepted, you’re working against time until you close. From the time the offer is accepted, you have up to 10 days to sign the Purchase and Sale agreement. That means you need to get a home inspection, get quotes from contractors for any major work that needs to be done, and renegotiate with the seller. The earlier you get the inspector in there, the more time you give yourself to get everything else done, so make sure you know who your inspector will be before you even submit an offer.
Speaking of renegotiating, your attorney can help you with that. It is important to hire your attorney ahead of time so that they can help you whenever you need them. Getting an attorney before you find a property will give you the opportunity to have the attorney review the offer before it is submitted. They will then be able to help with renegotiation and reviewing your Purchase and Sale agreement.
In your offer to Purchase, you establish a timeframe by which you need to receive a commitment letter from your lender approving you for the loan. This is in the section known as the mortgage contingency clause. In the offer, it may be a general timeframe, such as “within 10 days of closing,” but in your Purchase and Sale agreement it will be a specific date. Before you submit your offer, it is good to find out what the seller’s desired timeframe is and it is always best to have a pre-approval from a reputable lender. If your pre-approval is from a quality lender and you have the confidence to establish a tight timeframe, your offer may stand out when the seller is making their decision. When looking for a lender, it is important to ask them how quickly they can close a loan. A common timeframe is 30-45 days, but in a hot market you will want your lender to be closer to the 30 day mark.
Contingencies and Risk
In a competitive market, your real estate agent may suggest waiving contingencies in order to make your offer more appealing to the seller. For example, they may encourage you to waive your inspection contingency because a seller may be willing to accept a lower offer if it means the buyer can’t back out based on what is found in the home inspection. This however, can greatly increase the risk involved in your purchase, as you may end up buying a home that requires thousands of dollars worth of repairs. If you are stretching your budget as is, waiving your inspection contingency would be ill-advised. If you are getting a loan to finance the purchase, your mortgage contingency clause should never be waived. By waiving it, you put yourself at risk of losing your earnest money (potentially 5% of the purchase price) if you get denied for the loan. All home purchases carry with them a certain amount of risk, but it is up to you to figure out how much risk you are willing to take on.
Other Ways to Improve Your Offer
There are ways to make your offer more attractive that can fit within a level of risk you are willing to take on. One example would be to increase your deposit. The typical deposit with an offer is $1,000, but a higher deposit may show the seller that you are serious. If you are using a loan program with a low down payment, you may want to consider increasing your down payment from 3% to 5% if you can afford it and still be comfortable with what you have in reserves. Remember, if a deal falls through and you have all of your contingencies in place, you will receive all of your deposit money back.
Using the inspection as an example again, you can increase the dollar amount in the inspection contingency. In a typical offer, your inspection contingency may say that if there is greater than $1,000 worth of repairs found during the inspection, you have the ability to back out of the deal and get your deposit back. If you know you would move forward with the deal even if there was $5,000 worth of repairs, you can put that into your inspection contingency and it may stand out compared to the other offers.
Try to be Objective
Buyers can fall in love with a home very quickly, but remember the house is not yours until it’s yours. And it’s never as perfect as it seems. If the inspection report comes back with a long expensive list of repairs and the seller is not willing to renegotiate, don’t stretch your budget beyond your comfort zone just because you felt love at first sight. There will be other, more reliable homes in the future.
You may also run into a situation where the appraisal comes in lower than your purchase price. If the seller is unwilling to bring the price down, the lender will require you to increase your down payment in order to move forward with the closing. As a result, you would be putting even more money into a property that isn’t worth the price at which you are buying it. In addition to having a new place to live, you want to make sure your home is a sound investment.