Quiz Time! Are You Ready to Purchase a Home?
A Zillow survey quizzed people on their knowledge of the housing market versus pop culture. The results? More than half (51%) knew more about breakups and kickoffs than appraisals and pre-approvals.
That’s scary, especially considering buying a house is a massive undertaking.
So, let’s see how well you know the home-buying process. Try to answer each scenario in your head before reading the rest of the text to see if you got it right. By the end of this article, you’ll either realize that you’re knowledgeable enough to purchase real estate or need some studying.
Scenario 1: Qualifying for a Mortgage
You’re applying for a $240,000 mortgage. You’ve saved up enough to pay the 20% down payment, your credit score is 680, and you have a debt-to-income ratio (DTI) of 55%. What should you work on to increase the chances of getting approved?
Answer: Improve your debt-to-income ratio.
While several government-backed loans will allow a DTI of up to 57% (the standard maximum is 43%), a DTI over 36% is considered high and requires increasing your income or lowering your debt to hit closer to the benchmark for mortgage approval.
Scenario 2: Winning a Bidding War
You already lost three bidding wars. Luckily, you stumbled upon an excellent property you feel would be perfect for renting out. What should you do this time to ensure that your offer is accepted? Should you prepare your pre-approval letter, include an escalation clause in your offer, drop contingencies, or all of the above?
Answer: MAYBE all of the above.
If the real estate market you’re eyeing is ultra-competitive, you’ll have to take a multi-pronged approach to snag deals. The three strategies we mentioned are okay by themselves, but combining them makes you irresistible, especially when playing in a competitive field.
Go the extra mile: Of course, if you have an agent to talk to, get their opinion on the best strategy to take.
Scenario 3: Proposing a Purchase Price
You’re interested in purchasing a home that doesn’t need any major repairs. It’s listed for $300,000, and you have a budget of $350,000. The latest comps have sold for $275,000 and $315,000. Homes are selling like flapjacks in this area, so you want your offer to stand out. How much do you propose?
Answer: $300,000—exactly what they’re asking.
In this scenario, offering the asking price makes the most sense because it’s within your budget and likely stands its ground among other offers. Don’t offer something you can’t afford, or you’ll dig yourself into a financial pothole from the very start.
Also, while the scenario assumes that the property doesn’t require major overhauls, always ensure that you get a professional inspector to check it out before deeming its condition. Don’t just eyeball it, unless you’re an expert in property inspection yourself!
Scenario 4: Lowering Total Out-of-Pocket
You finally purchased a house. During the negotiation, the seller agreed to pay all (or the majority of) the closing costs. But you still feel like your budget is stretched a bit too thin, considering you still have to buy furniture and basic appliances. What could you have negotiated to lower the cost?
Answer: Everything inside the home.
Listen—everything is on the table whenever you’re negotiating to purchase a home, and the furniture, appliances, and other things are all up for grabs. You can always ask the seller if they’re willing to leave some of their stuff (e.g., bed frames, light fixtures, etc.)
so you don’t have to buy new ones. Depending on the seller’s reason for selling, they may even appreciate the offer to help unload unwanted items!
The Bigger the Knowledge, the Better the Deals
So, how well did you do? If you answered all four questions correctly, you’re ready to buy real estate.
And if you weren’t too sure about your answers (or got them all wrong), we highly recommend that you read our blog on how to analyze real estate and get in touch with our expert property managers. We have more than two decades of experience and can help you traverse the complex real estate market.
You’ll purchase the best property if you’re in our hands!