Think it’s time to look for your first home? Here’s a little dose of reality to start you off.
Here in the Sioux Falls market (and reflected in many markets around the region) there is a general shortage of listings in the typical ‘first-time buyer’ price range. Like, about a third of what they would like to see. This means things are going fast. One couple I had in class in Sioux Falls reported they had put offers in on three different houses the day they came on the market and were still too late. The homes had sold. One client in Brookings reported they had it happen four times before they got a home.
Now it’s time for a flashback to your last economics class. Low supply and high demand means…? That’s right, higher prices. While this is somewhat regulated by the appraisal process (unless you are paying cash for your home), do not expect to get a deal on any home that is ready to move in to.
Have I made you nervous? Don’t be. People are still buying their first house every day of the week. It can happen for you. If you are ready, it will happen for you. There are just a few things you can do to help you be in the best position to have a purchase agreement accepted.
Here is a list of little things that can make a big difference in your next offer being accepted:
Be Pre-Approved – Because financing is such a big deal, most sellers want to see a letter from a lender stating that you have been pre-approved for a loan. They will want to see this along with your offer to purchase the home. In short, the first thing you should do after setting your own budget is to go to the bank and get preapproved for a loan. I would also suggest you go to a few banks and compare their loan costs. Then get a preapproval letter (without the actual preapproval amount listed) that you can include in your purchase offer.
Find an Active Realtor – Finding the right Realtor can make all the difference. When things are moving so fast, make sure you find one that is active in the market every day. Ask how they keep up with new listings. Ask how they will notify you of new listings. If they are going to check the new listings once a week and mail them to you via the post office, you are going to miss homes you may like. But be ready to do your part as well. If they send you a listing, check your email and be ready to move.
Know What You Need – Take some time to identify your needs in a home before you really start shopping. If there are two of you purchasing a home together, be sure to have an outright and honest discussion about what you need to have to live. If you are spending time looking at homes that just aren’t going to work, you may well be missing other homes that would work.
Know What You Would Give Up – Let’s be honest. There is no such thing as a perfect home. Even if you custom build your own, it will not be perfect. Looking at the list of your wants (not your needs), prioritize them and know which items you would be willing to sacrifice to get other items you want. Carry that list in your pocket if it will help. Then, standing in a home, you can pull it out and use it as a checklist to evaluate the home. While negotiable items may involve different amenities in a home (main floor laundry, extra bathroom, etc.), it may also include purchase terms like closing date, closing cost contributions, and more.
Keep a Top Two – If you are looking at multiple homes, always have a ‘top two’ that you are comparing to. When I was an active Realtor, I may have shown five or six homes to a client in a day. If you are trying to keep that many straight, you will get lost in the details. Instead, identify your top two, throw everything else away, and compare every new showing to those top two. It is more efficient and will help you keep your sanity.
Trust Your Realtor –They really do want to help you find the right house. If you have a good Realtor, they are looking at listings every day. They may already know about a listing and know why it will not fit your needs without even going into the home. Those Realtors that have been around a while can even remember details about a home that was last on the market 5 years ago or longer. I’m not saying any of them are perfect, but if you are letting them represent you, you need to be able to trust them.
Be Decisive – As quickly as things are moving, you need to be ready and able to make a decision on a home. While I often like to sleep on something before making a big decision, you simply may not have time for that in this market. Just be ready for it and talk yourself into decisiveness before the moment arrives. Don’t worry; decisiveness includes saying ‘no’ too.
Don’t Give Your Notice – Because things are so uncertain in the market, don’t do anything that would create more crises for you – like giving your landlord a 30 day notice as soon as you start looking at homes. It may well take more time than that just to find a home to make an offer on. While many closings are happening around 30 days from signing of the purchase agreement, changes to the closing process may well be pushing that out to at least 45 days. You will have time to give notice to your landlord when the time is right. Don’t shoot yourself in the foot and give notice early. Your Realtor probably isn’t going to let you move in with them if they don’t find you a home in time.
Buying your first home is a big deal. Please don’t read this as trying to diminish the process or scare you out of it. Rather, I want the process to be as smooth and comfortable as possible for you. These are steps that will help that be the case.
One other item I would suggest is to attend homebuyer education. In eastern South Dakota, you can get that education free through the Center for Financial Resources. Even if you aren’t quite ready for a purchase yet, the class will help you be ready when the time comes. And it’s a free class. If you are outside of eastern South Dakota, ask your Realtor, lender, or contact your local housing authority for recommendations.
If your lender has decided your credit report isn’t quite ready for a home purchase, CFR also provides a Pre-Purchase Appointment as well. We will pull your credit report and educate you on what it says, what it means for you, and what you can do to improve it. For those looking to buy a home, the cost of that appointment is covered by a grant from Wells Fargo.
It is still entirely possible to buy your first home. You simply need to be ready when that house comes on the market. Don’t be crushed if you lose a deal. Just be ready to move on to the next. A little preparedness and you will be asking your friends to help with the moving before you know it. Just be ready to buy them a pizza or two for helping.
written by Breck Miller
images courtesy freedigitalphotos.net