If you’re a buyer, one word of warning. You’re in a seller’s market where residential home inventory is tight. Don’t get cute during negotiations. Homes are selling fast and generally for more than the asking price. If you like the house, be prepared to move quickly and perhaps pay more than you were planning. Beyond that, here are some talking points that may help you with your home buying strategy.
Buying a home for the right price is an art form and not a do-it-yourself activity. You want to engage a top real estate professional who knows the market, the true value of the home, the potential of the neighborhood and, in the end, one who is a proven negotiator. To start the process, you should first choose a lender and get pre-approved, rather than pre-qualified. The difference is your lender has gone beyond opinion, based on your oral interview, and has fleshed out your financial situation in order to “pre-approve” you. This makes a world of difference in a seller’s market like this. With a pre-approval rather than a “pre-qual” your real estate professional will inform the seller and their agent that you are approved. That’s right, not only does the buyer get approved, but the seller’s home must get approved via inspections and appraisal.
Which leads to the three basic items you must collect and assess: the appraisal, the home inspection and the comps. In addition, if you don’t have the cash, you’ll want to pre-qualify for a mortgage. Your credit score and down payment will factor heavily into the interest rate you’ll pay. Your mortgage payment is comprised of the principle, interest, property taxes and home insurance. To secure the maximum monthly mortgage, a rule of thumb is your payment and other debt should not exceed 36 percent of your gross monthly income. But, one word of caution: If you’re not anticipating a tax refund, you should not exceed 25 to 33 percent of your gross income. After all, you make mortgage payments with your net-payroll proceeds, not your gross.
After the 2008 housing debacle, residential real estate appreciation became somewhat suspect as a hedge against other assets with appreciation potential. The market has recovered somewhat, but it may never return to the kinds of gains people were used to before the housing market crash. And, by the way, those gains were not healthy; they were unsustainable. However, in today’s market, appreciation rates averaging 4 to 5 percent may provide a solid long-term investment.
It’s important to contact a financial professional or real estate professional that specializes in home purchasing strategies for buyers entering retirement. Contact yours before making any big decisions.