A pivotal step of the homebuying process is the step in which you make an offer on a home. This comes after the housing search and before closing, and it’s a very important moment. It’s important to remember that if you make an offer on a home, and your offer is accepted, you both are in a legally binding contract for the sale/purchase of the home. With that in mind, make sure you’re completely ready to take on the price, upkeep, and general duties of owning a home. Here are 5 important things to consider when making an offer:
1. Can you afford to own a home? Depending on where you’re living now and the home you’re planning on moving into, your monthly payments may go up. In many cases, monthly mortgage payments (for a single family home) are higher than rental payments. Calculate the monthly payments for the new house and make sure you can afford them. On top of that, take into consideration the fact that your electric, gas, and water bills may be higher in a home, that you may have a homeowner’s association fee to pay, and that as a homeowner, you have to pay for outdoor maintenance. Get a rough idea of what you can afford to spend on a home every month, and then make an offer that is consistent with that information.
2. Can you get approved for a home loan? Many homebuyers, but especially first time homebuyers, cannot afford to buy a home outright, which means that they will need to be approved for a home loan. In order to be approved for a loan, lenders will look at your credit score and history, your current debts, current payments you’re making (on a car, tuition, etc.), and your income. You can get pre-approved for a home loan before you even start your housing search, but being pre-approved does not guarantee that you will actually be approved. To give yourself the best chance at being approved for a home loan, practice good spending habits, make all payments on time (bills, credit cards), avoid frivolous shopping, and make sure you’re bringing in more than you’re spending.
3. Does the home need repaired or updated? Real estate professionals urge buyers to get a home inspection before making an offer on a home. This is because a home inspector can find and warn you about any major or minor problems a home may have that you (and possibly the seller) weren’t aware of. This can include anything from electrical outlets that don’t work to an unstable foundation. It’s important to know what the problems of a home are before you get into contract. If there are serious, health or life threatening problems, most buyers will not make an offer; if there are some minor problems, you can ask the seller to repair some as part of your contract (which the seller may or may not agree to). Either way, you’ll know what the home is going to cost you (repairs and all) before you even write up an offer.
4. What are comparable homes in the area selling for? Usually your real estate agent will find this out for you. The agent will give you a comparative market analysis (CMA) which tells you what similar homes in the area have sold for recently. This will give you a good idea of whether the home you’re looking at is over, under, or reasonably priced, which will definitely affect the offer that you make. According to Realtor.com, “There is a general rule not to pick the nicest home on the block, because lesser homes gain value from better homes in the neighborhood”, so keep that in mind as well.
5. How long will you be staying in this home? Generally, real estate professionals recommend that you plan to stay in a home for at least 5 years if you’re buying. If you’re not prepared to settle in this place for the next 5 years, you probably shouldn’t put money into buying a home. Conversely, if you do plan to stay in the home for 5+ years, it’s important to assess whether or not a home can meet your growing and changing needs. For instance, if you will have more or less (going off to college, moving out, etc.) kids in the future, is this home going to change with you, or hinder your need to change things?
Keep these 5 tips in mind before you make an offer on a home.
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