The idea of buying a home, especially a first one, is both exhilarating and overwhelming. Where do you begin if you want to buy a home in 2018? If you want to purchase real estate in Silicon Valley before the year is over, you’ll need to get a number of things in order, including hiring professionals to help you.
Purchasing now, in this multiple offer market requires strong credit, a healthy down payment with set aside for reserves and improvements after closing, time and energy, and no small amount of courage. Looking halfheartedly means you will see properties, but not buy. After the down payment, probably the most important element you’ll need to have is commitment, and further, you’ll need a strong team of professionals to assist you. Let’s talk about a solid home buying strategy.
It is difficult, but not impossible, to get your real estate purchase offer accepted with 10% down financing or even less. That said, you will need more than the down payment alone to buy a home. Other expenditures will to to closing costs (budget 1% for a 0 point loan), additional money set aside for a potential appraisal shortfall, reserve funds, and needed improvements to the property after closing. Since we are in a seller’s market, the current owners will not do fumigation for drywood termites or any other repairs, so plan for that, too.
What about low down payment options?
There are lower down payment loan programs available than 10% down. In multiple offer situations, though, having more cash is a big help. You may find a 3 to 5% down option with your lender, but sellers may not accept it if there are other bidders with more cash. (Even 10% will be a harder sell if another buyer competes with 25 or 30% down.)
That said, the REAL issue with low down payments boils down to these two, which you may be able to overcome:
- lower down payment loans appear more likely to not go through
- lower down payment buyers appear to not have enough cash to make up an appraisal shortfall
Both of these are fixable in many cases. If you can get your loan (of any type) pre-underwritten, not just pre-approved, the odds are very good that it will close. It’s important to know the difference and to make sure that the listing agent and sellers know the difference, too! If you have 10% saved, you could apply for a 5% down loan and use the balance as a cushion against an appraisal shortfall.
Just not ready yet – need more cash for any type of loan
If you are shy on cash, it’s time to power save. Skip the coffee shops, the wardrobe enhancing, the lavish date nights. Save like it matters that you buy soon. Sometimes saving isn’t enough. It may also be time to see if family members can help you. The down payment is the largest hurdle for home San Jose area home buyers.
When’s the last time you checked your credit score? This is something you don’t want to do too often, as many credit inquiries can lower your score. Often the reports may show something that you actually took care of eons ago. Be sure to get it cleaned up. If you are habitually late on credit card payments or other debt, it will sting you in the credit score, and that, in turn, will make you pay a higher interest rate (because you’re seen as a bigger risk). So get your stuff together, clean up the credit report so that you look like an attractive partner to lending institutions. This is a courtship!
Hire strong team members: your Realtor and your lender
Once you have the down payment in hand and a cleaned up credit report, it’s time to add to your home buying team. Now you need to find great professionals to assist you with your home purchase – a top Realtor and a top lender, both of whom should put your best interests first and help you to accomplish your goal.
It probably goes without saying, but not all real estate agents and loan officers are equal. This is not like buying movie tickets, but is a complex set of hurdles to get over. Better help means better results for you. A real estate salesperson who’s been licensed for 3 months will make the same amount on your home purchase as one who’s highly experienced and had extra training. Same with the mortgage adviser. Please be selective for both of these professionals!
Set your priorities
If you want to buy a home, perhaps the toughest task is setting your priorities. In my experience, the thing that slows buyers down the most after unrealistic expectations is the inability to set and rank priorities. The majority of house hunters will determine three or four “must have” items. Usually, most are attainable, but not all. Frequently the head-to-head area is price versus commute length. Perhaps you can get the home of your dreams that hits all of your priorities, but it’s 20 minutes or more further than where you want to go. Choosing a location that will be in budget is key. Or you can get your home and square footage, but not at the price you want. It’s common. The sooner you can settle on the order of priorities, the quicker you will be able to start writing an offer and close in on your goal of buying a home.
Many first time home buyers cannot envision themselves in a condominium or townhouse or single family home that isn’t turnkey – absolutely perfect. Sometimes that perfect house is in a less than perfect location. I’ll admit that I, too, believe the old real estate adage, that the most important thing is location, location, location. Remember, the property you buy today may look new in 2018, but it won’t stay new. Eventually it will be an old house. You can improve the house, but you cannot do anything about the location. My suggestion is to buy a property that has fixable problems, if any – as long as they are in your budget. If you are stuck on the perfect home, you will have far more competition unless you are looking at a perfect home in a bad location.
How long should it take to successfully buy a home?
Most home buyers who are committed are able to get into contract to purchase a condo, townhome, or house within 2 – 4 months. Often buyers need to write on a few homes before they get into escrow, but every year I do see some nail it on their first attempt.
On the other hand, some write low offers or don’t write at all, because no home quite lives up to their expectations. At some point, if that’s the situation, it’s best to go back to the priorities question. Sometimes consumers want a perfect house in a perfect location at an unlikely price. If it’s an appreciating market, the target becomes increasingly untenable. It’s helpful to have a Realtor who will be direct about your odds of success – even if that’s not what you want to hear. Taking a long time to buy will sometimes result in your being priced out of the market in the community where you really would prefer to live.
Do you want to buy a home in 2018? Please email me to schedule a call and we can start the ball rolling!