Getting an offer accepted on a personal or investment home is challenging across much of the country. Here are four questions to ask yourself when buying in a tight real estate market:
1. Are my finances lined up?
Availability is close to historic lows, and offers higher than asking price are common. Amid the surge of buyers, you’ll have to move quickly — and that means having your finances ready to go. Consider the following:
- Budget. Be realistic about how much you can afford — and stick with that plan.
- Credit score. Higher credit scores could help lower your interest rate.
- Down payment. A larger down payment will reduce your monthly mortgage payment and potentially make your offer more attractive to the seller.
- Mortgage pre-approval. This tells sellers you’re serious about buying and have the wherewithal.
2. Is this the right purchase for me?
Finding a property with every detail you want may be more difficult, but you can still find one you feel excited about. Ahead of time, define your priorities and compromises to focus and streamline your efforts.
As you contemplate a purchase, consider your other financial goals. For example, respondents in the Ameriprise Financial Priorities study indicated their top priority remains saving for retirement. They’re also placing a higher priority on protecting the wealth they have accumulated.
3. Am I comfortable with the ongoing expenses?
Beyond the actual sale price and closing costs, you’ll need to factor in recurring costs:
- Property taxes
- Insurance
- Maintenance
- Updates or remodels
- Association fees (if applicable)
Unexpected expenses could always arise, such as replacing a furnace or uncovering a plumbing or electrical issue. Consider maintaining an emergency cash reserve for at least three to six months of living expenses to help in these types of situations. Your financial advisor can also recommend a specific amount appropriate for your situation.
4. Can I make a competitive offer?
“Housing-market fundamentals remain very much in the favor of current owners, to the detriment of prospective owners,” says Ameriprise Financial Chief Economist Russell Price. “This imbalance is likely to remain in place for quite some time — possibly years.”
Prepare to bid competitively to make your offer stand out. But remain pragmatic and know your limits — both financially and risk-wise. Here are strategies buyers have been leveraging in some areas of the country:
- Offers above asking price
- All-cash offers
- Waiving the home inspection
- Accommodations for the seller’s closing date or move-out timeline
Sellers in certain areas might prioritize all-cash offers. If appropriate for your situation, a margin loan or pledge loan could provide you with the necessary liquidity.
Get ready to make your move
Securing a new property can be even more rewarding when you feel confident about your choice. Your Ameriprise financial advisor can help you understand the financial implications of a real estate purchase.