When the housing market is slow, referred to as a "buyers' market," there are typically more houses for sale than buyers interested in purchasing them. Anxious sellers may reduce their prices and offer concessions to lure buyers in.
That can make it a great time to buy—but don't throw caution to the wind. To get the best deal, evaluate whether you're truly read to buy, learn the ins and outs of the market, consider the pros and cons of buying a foreclosed home, and take advantage of market conditions when negotiating the deal.
Your first step to buying a home in a buyer's market is a little soul searching: Why do you want to buy? If you're tempted by low prices and would stretch beyond your means even for a home with a discounted price, you could be setting yourself up for failure. The U.S. housing market is littered with the former homes of millions of consumers who borrowed more than they could afford. To figure out what's realistic for you, start by reading Nolo's article Qualifying for a Mortgage, and then plug some numbers into Nolo's online calculator How much home can I afford?
Of course, no one knows when prices will hit rock bottom, and if you wait for prices to fall further, you could miss out. Because of this uncertainty, it's best to buy a home because you need a roof over your head—if the price is comparable to renting—and you plan on sticking with the home long enough to make the deal pay off. Buy because home ownership is a good fit for your lifestyle, personal goals, and, of course, your budget. (For more help in determining whether you're ready to buy a home, read Nolo's article Are You Ready to Buy a House?)
Don't get swept up in what you see in the national media about the state of the U.S. housing market. Find out what's happening in your local market, even down to the neighborhood you want to buy in. In some regions, one block may be a buyer's market with a slew of available reduced-price properties, but the next can be competitive, perhaps because the school district is better. You're more likely to see this in metropolitan areas with diverse neighborhoods than in suburban communities or planned-unit developments that focus on uniformity.
Your real estate agent should be able to give you important market data pinpointed to the locale you hope to make home. These factors will tell you whether it's a buyer's market:
Learning about your particular real estate market will help you learn the true value of a property. This helps you set a realistic offer price and prevents you from overpaying. But, even in a buyer's market, you shouldn't assume that you can get a house for well below its value. Unless the seller is truly desperate, you risk alienating him or her by a giving a lowball offer, and you may lose out on a good deal that will instead go to a more realistic buyer.
Even in a buyer's market, it's crucial to know for certain what you can afford. The seller has a lot at stake in a down market. He or she doesn't want to enter into a deal with someone who can't carry through, given that selling a house that's been on the market for a while is even harder than selling one that's still fresh.
It will help your chances of snagging a great deal if you can show the seller, right away, that you're in a financial position to make the transaction happen. Be sure to get preapproved for a mortgage in advance. Preapproval means a lender has agreed to lend you a certain amount (subject to final review and confirmation). Don't get this confused with prequalification—that's just a lender's speculation about what it thinks you'll be able to borrow. But also don't assume that preapproval is an iron-clad guarantee. Even a preapproval comes with conditions, and you'll need to satisfy the lender—who's scrutinizing borrowers harder than ever—that you're financially stable and still employed right up to the day the house closes.
To learn more about financing your home purchase, and the difference between preapproval and prequalification, read Nolo's article Where to Shop for a Home Loan or Mortgage.
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