Making an offer on a home can be as nerve-racking as a bungee jump, especially the first time you do it. After all, you’ve probably been dreaming about buying a home for years, and it’s about to get real. How do you take the leap with confidence?
Well, confidence at this critical stage of the homebuying process is about more than knowing how to make an offer. A lot of it comes from having done some financial and emotional homework beforehand.
So here are five simple, practical to-dos that will help you expand your comfort zone. It’s best to get them checked off before you find that just-right house, but if you’re already there, don’t worry. It’s not all or nothing, and some of these are quick.
1. Know for sure what you can afford
Confidence starts here! The financial commitment of a mortgage can be scary … but a lot less so if you’ve done the math on what you’re truly comfortable paying. Which, BTW, is not necessarily the same amount a bank thinks you can pay.
We’ve got finding your maximum home price down to just six steps, and you don’t even have to do any math (assuming you’ve already done a monthly budget). Check out the steps here. If you’re close to making an offer, you’ve probably already gathered some figures that will make it even easier.
2. Know what you need (vs. what you want)
Common fear: “Am I making an offer on the right house?” The right house is one that, first of all, meets your needs.Otherwise, you might not stay in it very long. Maybe you want a gourmet kitchen but need two bedrooms and a home office space. Wants are part of any home shopping list, and some of them are deal breakers. But are any of your wants clouding your judgment?
Being clear on needs and wants will help you feel confident that yes, this is the right house. Try spending a little time with our needs vs. wants checklist. It’s a simple yet valuable tool. If you’re home shopping with a partner, it can be pretty interesting to make separate lists and then compare.
3. Look at plenty of homes
Sometimes, buyers find the right home fast, happily making an offer on the first or second one they see. But as a general rule, the more houses you’ve seen, the more confident you can be that you’ve found the right one for you, at a fair price.
Besides seeing every place that your real estate agent lines up for you, visiting open houses can be worthwhile if you’ve got the extra time. Scrutinizing photos on Zillow is helpful, but there’s nothing like seeing homes in person.
Agents will tell you that open houses aren’t great for actually buying a house — again, as a general rule. But window shopping can help you educate yourself about your market and what you can expect to get (or not get, speaking of wants) for your money.
4. Get preapproved for a loan
As we said above, there’s what you’re comfortable with, and there’s what the bank will give you. To make a confident offer, you’ve got to know both. Preapproval is a formal agreement from a lender to loan you a specific amount of money.
Besides putting your mind at rest about your loan, preapproval makes your offer more appealing to sellers because they know for sure that you have the money to back up your offer.
Don’t get preapproval mixed up with prequalification. Prequalification is an informal estimate of how much you can borrow, based on your gross income and debts. You won’t necessarily be approved for the amount, but the quick estimate is helpful when you’re shopping around for a mortgage.
5. Understand the cost of money
Deciding exactly how much to offer can be tough, partly because the average homebuyer isn’t used to dealing with so many zeroes. You might feel more confident about settling on a number with some perspective on the cost of money — as opposed to the price of a home.
Here’s what we mean. Let’s say you’re shopping in the $200,000 range. You’ve got $10,000 to put down, and you’ve locked in a 4.5 percent interest rate. Watch what happens to your monthly mortgage payment (without PMI or home insurance) as the price changes:
|Home Price||Monthly Payment|
As you can see, a $5,000 difference may sound big, but it means just another $25 a month. While it’s good policy to have a line that you will not cross (see no. 1), is $25 a month enough to make you walk away from a house that really feels like home? Probably not.