You’ve found the perfect home. Now it’s time to make your opening bid. What steps should you take before you take the plunge? Here are two time-tested recommendations:

 

1. Work with a real estate agent. This professional will know the neighborhood, what other homes in the area are selling for and how much competition there is for the home you want to buy. So you’ll be better armed to determine the right opening offer.

 

2. Do your own homework. Your opening bid should be comparable with what other homes in the neighborhood have sold for over the past three months. In particular, find out how much of a “discount” homes in the area have sold for, compared to their original asking prices. A good rule of thumb is that if a home sold at less than around five percent of the asking price, you should initially offer about eight to 10 percent less than what the seller wants.

 

There are several common sense rules you should follow as well, before you make an initial offer. Ask yourself:

 

·  Can you really afford the home? A good rule-of-thumb is that the sales price should be no more than 2-1/2 times your annual income. Your real estate agent or mortgage lender can help you determine if the home you’re considering fits your budget.

 

·  Can you live in the home for several years? There are a lot of transaction costs involved with buying and selling homes. So if you know you’re going to move again in just a year or two, it may make sense to wait until you can own the home for a few years.

 

·  Is your credit history good? The best credit qualifies for the best mortgage interest rates. It’s that simple. So if you need to do some “repair work” to strengthen your credit rating, it’s wise to do it before you get serious about making an offer on a new home.

 

·  Can you afford the down payment? Generally, a down payment is 20 percent of the home’s sales price. But your mortgage lender should be able to offer you several options that require a lower down payment than that. For example, qualified buyers can get an FHA Mortgage with as little as three percent down. And VA Loans require no down payment at all.

 

·  Can you afford the closing costs? Your mortgage lender will likely give you the option of paying “points” at closing in order to lower your interest rate. A “point” is equal to one percent of the loan amount. So if you borrow $100,000, one point would be $1,000. If you plan to live in the home for many years, it may be a good idea to pay the points up front and lower your rate over the life of the loan.