Last week, we wrote about what buyers can do in a seller’s market to win contracts on the homes of their dreams.
This week, we’re diving deeper into specific financial strategies that can help. Once again, we’ve relied on our panel of real estate experts from around the country.
Look into First Time Home Buyer Savings Accounts
Idaho recently joined a handful of other states in creating a tax-advantaged program for first time homeowners saving up for a down payment, we learned from industry veteran Mackenzie Johnson with Boise Premier. All you need to do is open a special savings account and keep track of how much money you deposit each year. At tax time, you can deduct that money from your tax bill.
Rules and qualification standards vary pretty widely, but it may be worth it to ask your Loan Officer if you could qualify. By our count, states that offer these programs today include:
- Colorado
- Idaho
- Iowa
- Oregon
- Minnesota
- Mississippi
- Montana
- Virginia
Having a strong down payment and money for closing costs is extra important in this market, our experts agreed, so it's smart to take advantage of anything that helps you save.
Use extra cash to waive the appraisal contingency
Home values in many markets are changing quickly, and sometimes that means appraisals can’t keep up with offers (especially if those offers come in significantly higher than the listing price).
For example, let’s say you bid $450,000 on a house that was listed at $400,000, but there’s a chance that the appraised value will fall short of the full $450,000. That could mean your financing falls through at the last moment, Mackenzie said. Listing agents know this, and they'll definitely tell their sellers about it.
One way to overcome the uncertainty with sellers is to offer to pay the difference in cash, Mackenzie said. It can seem expensive upfront, and you’ll need to make sure you can afford it, but it could be the tactic that gets you the property you love.
Decrease your down payment percentage
This one sounds completely counterintuitive—we know—but it could make sense in the right circumstance.
Here’s how it works: Before you start bidding on properties, ask your lender if you could reduce your down payment percentage. That way, you could have more cash to spend in a bidding war.
For example, suppose you've saved up $50,000 for a down payment and you're looking at houses in the range of $250,000. That's a standard 20% down payment. But if your Loan Officer can find a loan program that allows it, you could use a portion of your down payment money for bidding instead.
Every loan is different, and there may be tradeoffs to a lower down payment such as mortgage insurance requirements. But with the market blowing up like it is, this method may still make a lot of sense.
As you're comparing lenders, it's smart to get info on multiple loan programs and get pre-qualification letters you can take shopping.
Sell first, then buy
If you’re selling one house and using the proceeds to buy another, you really should get your existing property under contract before entering any bidding wars, said Cheryl Knowlton, our premier real estate expert and a nationally renowned coach.
Nick Schlekeway, CEO and Cofounder of the third-largest firm in Boise and a real estate coach himself, agreed. He explained that having contingencies (such as a sale) on your offer could send that offer right to the bottom of the stack.
He recommended getting into a flexible housing arrangement if at all possible. That could mean renting month-to-month or even living with family temporarily, but it could give you the edge you need.
If you can’t sell before buying a new place, you might want to offer more earnest money to sweeten the deal and reassure the seller, Mackenzie said. Work closely with your lender and your real estate agent to find the best possible strategy.
Consider new construction
Remember that story we told last week about a particular lot that increased in appraised value by $50,000 before construction had even started? The buyers were first time homeowners, and they were clients of Mackenzie’s.
Their story (and the experience of many buyers like them) is why she recommends first timers consider new construction. You may have to wait six months or a year for a move-in date, she said, but buying new is a great way to avoid a bidding war. Waiting may also be a way to save cash for upgrades on that brand new place.
Forget about seller concessions
The days of seller concessions such as help on closing costs are in the past, our experts said. They may come back someday, but no one knows when (or if) that will happen.
Buyers who need help with closing costs, for example, are going to have a really hard time winning bids in this market, explained Dinko Keserovic, an agent with EXP Realty who helps buyers in both Texas and Utah.
Buyers have the best chance of winning a contract if they bid strong, keep their expectations in check, and have the right Realtor on their side, he said.
“Have a Realtor that understands stuff, knows what you can waive and what you can’t,” he added. “There’s ways you can write up an offer and contingencies and things like that, and you want an agent who’s going to follow up with the listing agent and make changes quickly.”
Happy House Hunting
If you’re thinking about buying a house, it’s essential to have a great team by your side. Check out these resources to get started on the right foot:
The Mortgage Process, Explained
What do Mortgage Lenders Look for When Approving a Home Loan?
What to Look for in a Mortgage Loan Officer
