NOV 28, 2022
Although most people are already aware that rising rates have curbed consumer appetite for homes, there's still intense competition depending on your market.
The home-buying journey can be an incredibly nerve-wracking process for first time buyers. It will drain you mentally, physically, and emotionally. Getting your heartbroken a few times is part of the process, so keep your head up - it's mostly a numbers game! Statistically, you improve your chances of getting an offer accepted by putting more offers out on homes that you like.
Below are my top bits of advice for new homebuyers:
No seriously, and I don't blame you for thinking it is. A lot of first time buyers have a misconception of where their offer stands in the totem pole. For example, in a competitive market, first time buyers may think that their offer price is the most important aspect of their offer. In reality, the offer price constitutes just one component of the overall offer.
One of the strongest indicators of where an offer will land on a seller's priority list is how the funds are being paid. There are typically 4 purchase options: Cash, Big down payment, Conventional, FHA - and they're ranked in that order. It's true, cash is always king and will continue to be because it sends a signal to the seller that their buyer has the funds to close, without any involvement from the banks. A big downpayment (30%+ of offer price) is the second on the totem pole because, although the buyers still need bank approval to close, the higher down payment signals to the seller that the buyer is a strong candidate for approval by the lender. Conventional homebuyers are typically putting down anywhere from 15%-25%, and so are ranked right under buyers with bigger down payments. At the bottom of the totem pole are FHA (0-3.5% down) and other government loan program buyers. It's not to say that these buyers will never get their offer accepted, but a seller will usually take longer to think about it especially if they have other offers on the table.
It's especially important to keep the purchase method (cash, downpayment, FHA, etc.) in mind whenever placing offers on homes, because it can help you tweak the other components of your offer. For example, if you know your offer is going to be at 0% down - you might want to put in your offer price at a higher number, or even be flexible with the closing date.
I've been in the same shoes as a first time buyer, and can openly admit that more times than not - I've been motivated by my emotions than my brain. It's hard not to think with your heart when it's your first time! It's an exciting period of your (and your partner's) life and it's understandable to get carried away. However, as an agent now on the other side of the table holding my clients' hands through the process, I can safely say that having reality checks from time to time will help.
The biggest question to always back into is: how much house can I afford? Most first time buyers will have a budget in mind that they want to loosely stick to, but will still opt to look at homes both well above & below that budget. It's part of the process to do so, however it will make it that much more difficult since it's hard to narrow down on any particular option. My typical advice for clients is to look at their pre-approval amount, and stick to that budget while starting their search - don't bother much with looking at homes above the pre-approval because you think you can buy it with a lowball offer.
I never advise anyone to rush the home-buying process, because you're likely to make more mistakes. However, I do advise people to not unnecessarily waste time especially when all your ducks are already in a row. As a first time buyer, you'll realize that a lot of times your nerves will get in the way of making a decision on your first home. That's totally understandable because at that point, it's the largest purchase you'll ever make. You should keep in mind however that if you loved a home, and had your offer accepted - there's probably interest by other people as well, and likely backup offers for the seller to entertain should they feel that you're taking too long to move onto the next step.
This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice. Mohammed is a real estate investor, realtor and founder of ClosedByMo.