Buyers preapproved for a $375K home often look for a $375K home. But they’ll likely get to closing only if they consider property with a lower asking price.
CHICAGO – Buyers preapproved for a mortgage may be tempted to shop for homes up to that maximum amount in listing ads. But real estate pros and financial experts advise setting a limit somewhat lower than that number.
The reason: House hunters should leave room in their budget to bid up in today’s competitive housing market.
“These days, houses are selling for more than their list price and, as a buyer, you’re more than likely going to end up in a bidding war,” says Lori Ozley, a manager with Birmingham HomeBuyers in Birmingham, Ala. “If you look at properties that are under your budget, you’ll have room to submit a competitive offer that goes above the asking price.”
For example, buyers with a mortgage preapproval letter for $375,000 may fall into the trap of shopping for homes that list for $375,000. But homes often sell for much higher than the list price these days. That could spell disappointment for buyers who continually get outbid. A local real estate professional can help them set a more realistic price level based on their preapproval allowance.
The advice “shop below the top of your budget” may seem obvious to real estate professionals, but buyers are often surprised at how much they have to stretch their budgets to afford a home they want. And many buyers seeking the American Dream find the temptation to shop at the top of their budget even more pressing.
The housing market remains competitive and bidding wars are typical. In December 2021, Realtors® said they received an average of four offers on their most recent sale. That number has held mostly steady over the past year as bidding wars remain elevated, according to the December 2021 Realtors Confidence Index Survey.
About two out of three millennials (64%) say they have at least one regret about purchasing their current home, according to a 2021 Bankrate poll. The top regrets were that maintenance, other costs and mortgage payments were too high – and 13% think they overpaid for their property.
Financial and real estate experts advise clients to factor in those additional costs of homeownership when bidding on homes, including maintenance costs, utilities, association and insurance fees, and more. Homebuyers in a bidding war often lose sight of those additional housing costs.
Source: “The New Rules of Homebuying Today: 5 Secrets to Succeed in a Red-Hot Market,” realtor.com® (Feb. 7, 2022)
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