A hot real estate market is generally great news, signifying a thriving economy and an attractive place to live. But hot markets can also be problematic for certain buyers, particularly those purchasing for the first time. Here’s what the novice needs to keep in mind about a bidding war.
Know your budget and stick to it.
Review your income and budget. Be sure to leave a cushion for emergencies. Give your overall financial health a reality check. Is your employment solid or are you at risk of layoff? Is your lifestyle about to change with the addition of a child? Do you have other new expenses, such as daycare, pending? Your lender will pre-approve a maximum dollar amount on a loan but only you will know if you can truly afford the corresponding monthly payment. Don’t forget to add the monthly cost of taxes, insurance, homeowner association dues and private mortgage insurance, if needed.
Leave your emotions at the door.
Don’t feel pressured into making an offer — or a higher offer — just because other parties are interested in a particular home. Talk to your real estate agent to make sure you aren’t overpaying for a home during a bidding war scenario. Remember, if the home doesn’t appraise for the selling price, you will need to come up with a larger down payment or risk losing the mortgage.
If you’re in a hurry, slow down.
Resist the pressure to buy quickly because of a divorce, a job transfer, or another home closing. Whatever the reason, consider a short-term rental instead of making a mistake in haste. The entire home-buying process could take several months. Stay focused and don’t compromise just to get the process over with.
Related: How to Win a Bidding War on a House