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Last fall, my wife and I decided to downsize our housing and move to something easier to manage. We successfully sold our home of 31 years and looked forward to buying another home that would meet our current and future needs. We are in a buyer’s market and I am sharing our experience because it may be helpful to you, if you anticipate purchasing a home in the near future.
Think before you look
Before we talked with a Realtor or started looking at houses, we needed a clear understanding between us of what we needed. We are both retired and our son has moved into his own place. Our list included the following:
•Location—Cleveland eastern suburbs
•The type of neighborhood—Condominium
•The type of home—Single-story cluster home
•Size—Approximately 2,000 square feet
•Bedrooms—3 bedrooms with large master bedroom
•Bathrooms—2 full bathrooms
•Garage—2-car garage
•Basement—Yes
•Price—Under $300,000
Each family’s housing needs are different. For instance, a working family with children may need to consider job locations, school systems, public transportation, etc. The most important point is to put your needs in writing, prioritize it and use it as your guide.
Select the right agent
In selling our previous home we interviewed three top real estate agents who had experience in our market area. All three agents were well qualified. We selected the one that we were most comfortable with as a partner on this journey.
We used the same agent to help us look for our new home. The agent reviewed our needs list and helped us work on our financing plan.
Get your loan pre-approved
We contacted two financial institutions to begin work on loan pre-approval. Having a loan pre-approval letter at the beginning of negotiations is a powerful tool. The agents and sellers know that you are a qualified buyer. If they can make a deal, it’s money in the bank!
Because of the mortgage lending fiasco of the past several years, lenders have gone back to the basics and are being prudent in their lending standards. Below are some general standards lenders are using for conventional loans:
•All income must be verified.
•Must have the last two year’s tax returns
•Need a credit score of 670 or above
•A maximum of 28 percent of gross income for principle, interest, taxes and insurance
•A maximum of 36 percent of gross income for all debt payments
•20 percent down payment required for loans without private mortgage insurance.
•10 percent down payment required for loans with private mortgage insurance
Finally, be realistic and honest with yourself on how much house you can afford. If you like to travel, buy expensive clothes, etc., don’t let a house payment be an albatross around your neck. Buy what you can afford and comfortably live with.
House hunting
Nearly all homes for sale are placed on the Multiple Listing System (MLS) by the selling agent. This gives the homes broad exposure to nearly all real estate agents and the listings are easily sorted by location, price, type of structure, etc. Our agent sorted the available homes in the Cleveland area, using our criteria. The agent e-mailed the prescreened home listings to us and we would select the ones we were interested in.
We looked at approximately 50 prescreened listings and actually visited 12 homes over four trips. The screenings and visits gave us a good feel for the market and also helped us to better understand our needs. We selected two homes in the same sub-division that we were interested in and we began negotiations on both.
Other lessons learned
•Don’t look at homes you can’t afford. They will make what you can afford look less attractive.
•In a buyer’s market, there are only a few qualified buyers looking. Our initial offer was 20 percent below the listing price. The final purchase price was 14 percent below the listing price.
•Make your offer contingent on a home inspection by a professional housing inspector and have major issues corrected by the seller before finalizing the purchase.
Purchasing a home in a buyer’s market is a lot more fun than selling, but you still have to do your homework to make it work to your advantage.
(Michael G. Shinn, CFP, registered representative of securities and investment advisory services offered through Financial Network Investment Corp., member SIPC. Visit www.shinnfinancial.com for more information or send your comments or questions to shinnm@financialnetwork.com.)
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