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Questions to ask before buying a home

Friends and clients—

If you’ve been following our real estate market, you know the story: inventory is low, prices are skyrocketing, buyers are overpaying for homes, and sellers are reaping the benefits. 

The numbers from February tell us this is the strongest seller’s market since 2006. According to Redfin, the national average of home prices rose 14.4% year over year to $336,200, closed sales rose 5%, and pending sales rose 21%. Furthermore, new listings fell 16%—the second-largest decline on record since Redfin’s data began in 2012.

This means competition among buyers is fierce out there. If you’re thinking of buying a home this spring, two important questions need to be answered:

1. Should you strive to put down 20% to buy?

In short, if you want to spend less overall on your mortgage, you should try to make a down payment of 20% (or more, if you can). Not only will you be able to secure a smaller mortgage loan, but you’ll also pay less interest over time, have lower monthly payments, and have great loan options and terms. 

The real advantage of putting 20% or more down in this historically strong seller’s market, though, is that it gives you greater purchasing power. With a higher down payment, you can afford to buy a more expensive home.

That said, there’s a reason the majority of recent buyers aren’t putting down 20%. Not everyone can afford to do so. If you count yourself in that category, don’t worry. Many lenders have loan products that allow you to pay as little as 3%—and sometimes even 0%—down. 

2. If you’re able to pay cash, how much does that matter in a bidding war? 

It matters a lot, actually. In fact, homebuyers who make all-cash offers improve their chances of winning a bidding war by a whopping 290%. Just because you make an all-cash offer, though, doesn’t mean you can go below asking price. Our market is so competitive that any lowball offers in a multiple-offer situation will almost certainly be discounted. 

As long as inventory is this low, cash is king. However, more Americans receiving the COVID-19 vaccine means more lumber mills reopening, which means the number of new construction homes should increase and provide relief to this inventory shortage. 

If buying a home is in your plans this spring, it’s time to start the process. You can get a jump on the spring market by taking a look at the homes that are available in your area right now:

Click here to see all homes for sale

As always, if you’re thinking about buying or have any questions, give me a call at (574) 529-5228. I’m here to help.

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