Bidding Wars: How To Win the House of Your Dreams
If you are in the market for a new home this year, you may already know that it's a hot housing market out there. High demand and low inventory are pushing prices ever higher and leading to bidding wars. According to the National Association of Realtors, inventory in May fell for the third straight month. Check out these tips to increase your chances of winning a bidding war and buying the house of your dreams.
Select a Lender First — Before you even begin your search, find a lender with competitive rates and ask to be preapproved for a loan. You will need to provide documentation so that the bank can verify your credit, assets, and income. Keep in mind that the lender often won't fully commit to providing the money you need until they assess the house you want to buy. A strong preapproval letter with your offer is essential if there are other qualified buyers.
Pay Cash if you Can — Although it's cliché, cash is still king in the home buying industry. If you can pay cash, the seller won't have to worry about the potential buyer procuring the financing he or she needs. Even if you are unable to pay cash for the entire home, you should have a sizable down payment of at least 20% to compete with other buyers. If there are other bidders, you can also impress the seller with a higher-than-average earnest money deposit.
Proof of Funds — While a preapproval letter is a must, it's not always enough. It's a good idea to keep a file folder on hand with recent pay stubs, recent bank statements, and any other financial documentation the lender may need for a quick loan approval. With up-to-date financial information on hand, you always have statements proving you have access to enough funds to pay the deposit and closing costs.
Fast Offer — To win a possible bidding war, make sure you see the home as soon as it goes on the market. Have your agent talk to the listing agent to find out what sort of offer the sellers need. If you really want the house, work their needs into your offer to make your offer stand out above the rest.
Eliminate Contingencies — When you make an offer, try to take out as many contingencies as possible. Contingencies in your offer give you the right to back out of the contract in certain situations. If you can take out contingencies regarding home inspection, financing or appraisals, you are making your offer stronger and more appealing to the sellers. It may be tempting to purchase the home as-is, but be aware of the home's condition by having an informational safety inspection completed.
A Possible Escalation Clause — An escalation clause is an addendum to your offer that authorizes your agent to provide a certain amount above the best offer received by the seller. An escalation clause is a powerful way to win a bidding war, but only go as high as you can with a price you can live with. Set a cap for yourself and make sure the house will appraise in that range.
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