The housing market has improved greatly over the past year, and as spring approaches, the real estate industry is preparing for another selling season. But, as reported by the National Association of Realtors, inventory remains low, coming in at a four-month supply at the end of January.
“The spring buying season is right around the corner and current supply levels aren’t even close to what’s needed to accommodate the subsequent growth in housing demand,” explained Lawrence Yun, the NAR’s chief economist.
With the current state of housing lending itself to more of a seller’s market than a buyer’s, it can feel like the process of purchasing a house is unfavorable to first time home buyers. For example, HouseBeautiful indicated that as of April 2015, San Jose, California, is the top city to sell a home. While the average homeowner would be pleased to sell their home in this area, a buyer may find it difficult to find a low cost mortgage. Despite this challenge, there are several things prospective homeowners can do to improve their chances of finding a good deal.
Get mortgage pre-approval
One of the best actions a buyer can take to ease the process of finding a home is get pre-approved for a mortgage. This will show sellers that a lender has looked at your finances and determined you are in good shape to get a mortgage.
“In New York City, it’s always advisable to see if you can go in without a financial contingency,” explained Daniel Hedaya, president of New York’s Platinum Properties, according to U.S. News & World Report. “It’s a market that’s dominated by cash.”
A pre-approval letter can also eliminate the need for a financial contingency.
Additionally, a pre-approval letter will help you move quickly on a home that is ready to sell a day or two after you view it. In a market that strongly favors sellers, a buyer may only be able to see a house once before moving in. The ability to act quickly is invaluable in this situation.
Make your offer more appealing
The best way to catch the attention of the seller is to differentiate your offer from the others. An earnest money deposit is one way to do this. The deposit is typically made up of between 1 and 5 percent of the purchase price and is put in escrow until the sale is final. Once the purchase goes through, the money is applied to closing costs and the down payment.
If something goes wrong and the sale doesn’t go through, the seller may keep a portion or all of the money. Because of this contingency, the seller may feel more secure with your offer because the earnest money deposit works as a sort of insurance.
“An earnest money deposit is one way to entice a seller.”
Another way to sweeten your offer is to cater the closing terms to the seller’s preferences. Reach out to the seller’s agent to find out if a faster or slower closing would benefit the seller more, then do your best to make sure to act according to his or her wishes.
Mortgage and inspection contingencies in your offer can turn some sellers off. If you are able to get a pre-approval letter, consider leaving off the financial contingency. Likewise, if you can get the house pre-inspected before you make an offer, you may be able to confidently leave this contingency out.
Looking for a house in a seller’s market can make a buyer nervous. By entering into the purchasing process with a strategy, like having a pre-approval letter ready or plans to make your offer a little bit better for the seller, you may improve your odds.