Once you have found the house of your dreams, the only thing that remains is to make an offer. You must thoroughly analyze the real estate market because the amount you offer will be your main consideration. Do not forget to make use of professionals if necessary, such as real estate agents and lawyers. Then, write a purchase offer contract when it is time to make the offer.
Consider comparable sales. The seller will want you to buy the house at a price like the price for which comparable houses (“comps”) have been sold in the same market. He should base his selling price on information about these sales, but you should also research on your own and look for comparable properties in the market through websites like Zillow.
- For a “comp” to be good, it must have a similar size and be in the same neighborhood.
- The market always changes, so the “comps” you find must have been sold in the space of the last three or four months. Unless necessary, this period should not exceed six months.
Consider the unique characteristics. There are no two identical houses. Therefore, you must modify your offer according to the unique characteristics (if applicable). For example, it is possible that the house has a swimming pool, while none of the comparable buildings has one, or that the house has an impressive view.
Evaluate the market. It is likely that the seller can receive an offer of the sale price or a little more if the market is very active. However, if the house has been for a long time for sale, you will have more power as a buyer. You should check how long the houses have been for sale before selling. If they are mostly for sale for four months or more, this means that the market is very slow.
- You should also get information regarding the average sale price each year. If the market is not very active, prices are likely to fall or remain stable.
Determine how much you can afford. If you cannot afford a house, there is no reason why you should make an offer. Create a monthly budget and evaluate how much your living costs add up. You can get an estimate of the cost of the mortgage using online calculators.
Find out the reasons why the seller is moving. In some cases, sellers may have a particular motivation to put the house up for sale. When visiting the house, ask the seller questions (if present). Real estate agents may be more reserved, but still try to determine the reasons why the seller is moving.
For example, a salesperson may have a strong motivation to quickly dispose of the property if he wants to buy another house or move to another part of the country.
However, it is possible for a seller to take more time if he is only going to move because he is retiring or making cuts.
Talk to an agent about your offer. You may not be sure about where to start or how to get an amount to offer. To do this, meet with an agent who has experience in the market in which you want to buy the house. You can get an agent online or by looking in the phone book.
You can obtain a comparative market analysis (ACM) of an agent. This constitutes an expert analysis of comparable sales.
Check your credit history. If you get a pre-approval for a mortgage, your position in the negotiation will be stronger. Therefore, check your credit history to determine if there is any negative information that could harm you. If you live in the US, you have the right to get a free credit report per year from each of the three credit bureaus.
Check for errors and dispose them. Common mistakes include accounts that do not belong to you, accounts that have a wrong credit limit, or accounts that are wrongly listed as due.
Check your credit rating. This will have an impact on whether you can get a mortgage and also on the interest rates that will be charged. Generally, to qualify for a conventional mortgage, your score must be 620 and, to qualify for the best interest rates, your score must exceed 740. [6]
- Often, your credit rating may appear on your credit card account statements.
- Another alternative is to use a free service, such as Credit.com, or pay for your FICO score on the myfico.com website.
Gather the necessary information. In order to request a pre-approval, it will be necessary that you provide the lender with enough personal information, which you must gather in advance: [7]
- recent pay stubs
- tax returns of the last two years
- W-2 forms from the last two years
- alternative income tests, such as food rights, child support, retirement income, etc.
- statements in your bank account for the last two months
- information about your investment account
- valid identification, such as a driver’s license or passport
- your social security number .
Submit the request. You can apply for pre-approval at a bank or credit union. To do this, you must fill out an application and provide copies of the supporting documents. You can ask the lender how long it will take to analyze your information.
Before submitting the application, spend some time looking for the best rates. You can also consider online lenders if you wish, although you should investigate them very well. For this, you can check with the Better Business Office (or the equivalent entity in the place where you live) or with the attorney general to find out if someone filed a complaint against these lenders.
Receive the preapproval letter. In case you are approved, the lender will send you a letter stating the amount of money for which you have been approved. However, this letter will not constitute a mortgage commitment, since the bank must really assess the house you want to buy, although it will constitute a proof that your finances qualify you for a mortgage.
In general, this letter will only be valid for 90 days, so you should wait until you are ready to start looking for a home seriously before requesting pre-approval.