From our long experience helping people like you with all aspects of the buying process, we’ve put together a short list of the questions we often receive, along with our answers.
Question 1: What price home can I afford?
Generally speaking, the price you can afford to pay for a home will depend on six factors:
- Your household income
- The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
- Your outstanding debts
- Your credit history
- The type of mortgage you select
- Current interest rates
Because there can be such variance within these factors, there are no simple ‘rules of thumb’. Your best bet is to speak directly with one or more financial institutions and/or mortgage brokers. They will be able to tell you what you can afford and what it will cost you, as well as help you to harmonize your mortgage within your broader financial goals. Additionally, do keep in mind that experienced REALTORS® will usually have mortgage contacts they often do business with who might be able to help you.
Question 2: At what point should I try to get pre-approved for a loan?
Ideally, once you have decided that you are going to buy you should get pre-approved — for a loan as soon as possible. This will give you three main advantages:
- You will know the maximum that you CAN spend, and on that basis you will be able to decide how much you WANT to spend given all your other financial obligations and priorities.
- Once you know how much you want to spend you will be able to perform your home search based on a specific price range, and this will help you to stay focused, save time and make more informed decisions with regard to any and all details (e.g. upgrades).
- If you find a home you absolutely love — perhaps one involving multiple offers — you will be able to make an offer immediately and assure the seller that you are ready to buy. In some buying situations this can make the difference between getting or not getting the home you want, and could also put you in a better position to negotiate price and other elements.
Question 3: How do I find out about the condition of the home I’m considering?
The best place to start is to take a tour of the home with an experienced REALTOR® who will not only be able assess the more superficial aspects of the home, but will often be able to identify tell-tale signs of potential problems if they exist.
If you make an offer on the home and it is accepted by the seller, typically it will be subject to the condition of a thorough inspection by a professional home inspector. Additionally, the seller will complete a disclosure form which outlines everything known about the property. The seller will be required to disclose any significant defects or malfunctions existing in the home’s major systems, as well as any problems with the interior and exterior walls, ceilings, roof, insulation, windows, fences, driveway, sidewalks, floors, doors, foundation, as well as the electrical and plumbing systems.
The form also requires sellers to note the presence of environmental hazards, walls or fences shared with adjoining landowners, any encroachment of easements, room additions or repairs made without the necessary permits or not in compliance with building codes, zoning violations, citations against the property and lawsuits against the seller affecting the property. Also look for settling, sliding or soil problems, flooding or drainage problems.
Further, if you buying a condo you will be able to purchase a document that describes covenants, codes, other deed restrictions, as well as whether the homeowners association has any authority over the subject property and ownership of common areas with others. Be sure to ask questions about anything that remains unclear or does not seem to be properly addressed by the forms provided to you.
Your REALTOR® will be able to guide you and provide expert counsel through all these steps.
Question 4: How low can I consider offering?
That depends on the market and a variety of other factors, often involving the seller’s needs.
There are always some sellers who for some reason must sell quickly. However, in a normal market a very low offer in a normal market might be rejected immediately. In a strong buyer’s market, the below-market offer will usually either be accepted or generate a counteroffer. If few offers are being made, an outright rejection of offers becomes unlikely. Conversely, in a strong seller’s market, offers are often higher than full price.
Additionally, there are other considerations involved:
- Is the offer contingent upon anything, such as your selling your current home and/or getting financing? Is the seller is looking for an early closing date? If so, then even a full price offer — or in a competitive sellers’ market, even an overprice offer — may not be as attractive as a lesser without those conditions.
- Is the offer made on the house “as is,” or does the buyer want the seller to make some repairs before the close of escrow or make a price concession instead?
- Is the offer all cash? If so, then an offer at less than the asking price may be more attractive to the seller than a full-price offer with a financing contingency.
- Are there any requests for seller concessions, such as asking the seller to contribute towards repairs and/or closing costs? If so, the offer is not really full price.
Moreover, it is important to note that different sellers’ pricing strategies can vary greatly. Some deliberately overprice, with others ask for pretty close to what they hope to get. A few — sometimes the cleverest in specific markets — actually underprice their properties in the hope that potential buyers will compete and overbid. That’s why, if you can you should try to learn about the seller’s motivation.
So there really are many factors, and every listing and sale is different. Your REALTOR® will be able to help you to strategically weigh all the options and act accordingly.