For the past year and change, houses have been flying off the market due to increased demand and lack of inventory. This has prompted bidding wars for most buyers, though it’s especially true for those looking to purchase a single-family home. With that in mind, what can you do to make sure you win the war and ensure that your dream home becomes a reality? Here are a few tips.
1. Get pre-approved
The best way to come across as a serious buyer is to show a seller that you can back up your offer. You can get a pre-approval letter from a mortgage lender online without having to run a hard credit check. That doesn’t mean that you’re committed to working with that lender—in fact, it’s smart to shop around for the best offer once your offer has been accepted. But it could give you the upper hand.
What is a pre-approval letter? Not all lenders offer one, but those that do will ask you a few basic questions. This may include questions about your income, monthly expenses, and debt-to-credit ratio. They will also run a soft credit check, which may require you to provide your social security number—but a soft credit check won’t affect your credit score.
Another great thing about getting pre-approved is that the lender will provide you with the max amount you can afford to pay for a home. This number is a great guide for setting a budget.
2. Have a solid down payment
The best loan rates will require a 20 percent down payment. Having at least this much or more is likely to make your offer stand out because it means you have more cash in hand to work with.
3. Increase earnest money
While it may have different names in different states, most offers include some form of earnest money. This is money that is held in escrow during the contingency period—during which, things like a home inspection are performed. Earnest money reflects that you are serious about your offer and have no plans to walk away from the deal.
Typically, you’ll be asked to provide one to three percent of your offer in earnest money. But sometimes, you can increase how much you put down to make your offer more attractive. That doesn’t mean you can’t change your mind. In most states, if you decide to walk away during your contingency period you’ll still get your earnest money back. Just keep in mind that you won’t get earnest money back after your contingency period is over.
4. Offer over the asking price
Many real estate agents will advise their clients to offer over the asking price when there are multiple offers on a home. Multiple offers often set off bidding wars, so it can make sense in certain situations. Just be careful. You don’t want to offer too much over the asking price. In hot real estate markets like Austin, the value of your home might rapidly increase. But even then, you are taking a gamble on what the home will be worth in five, 10, or even 15 years.
5. Buy a new construction home
You can often avoid bidding wars altogether when you purchase a new construction home. With new home builders, you can pick out a home that hasn’t been built yet. You’ll have more options in how you personalize your home this way and more of a say in where and how it is built. And even in popular new home communities, you can typically put your name on a waitlist. Homes are then offered on a first-come, first-served basis—without the need for any bidding wars.
Bidding wars aren’t much fun, especially for first-time homebuyers who are likely to have less of a down payment and more personal attachment when they feel like they’ve found the one. But you shouldn’t let bidding wars stop you from making, perhaps, one of the most valuable investments in your life.
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