Just when you thought you got yourself a good deal on a home, your lender phones and tells you the plan-shattering news: you’re not the only one who likes it. Apparently there is someone else – or more – who found the property as appealing as you did. While this could most likely dampen your spirits, know that it’s not the end of the world – participate in the bidding war – and win it!
Bidding could be scary to a lot of home buyers. For starters, you automatically think your chances of winning is slim. But that fear comes from a common mistake: lack of knowledge or misinformation.
Yes, you can totally win a bidding war. And it’s not as horrifying as you think. Let’s walk you through some tips that will likely improve your chances of getting that most coveted dwelling.
Putting a higher down payment
The moment you know you’ll have to bid, you will immediately have to reconsider your previous offer. Is it good enough? What would make it stand out more than the other offers?
Remember that the interest of a seller lies in selling his or her home and get the money from it as soon as possible. That is why cashoffers are very appealing. If you are bidding against individuals who are also depending on financing to fund the purchase of the property, one of the most effective strategy to sweeten the deal with your seller is to put down a more hefty down payment.
A higher down payment tells the seller that you are serious in your intent to buy his or her home. Nothing says “I want it” more than a 20 percent down on a property in question. If you are getting a conventional loan and can afford the necessary sum – or higher – put it down and let the seller know you mean it.
Evaluating the type of financing to get
Not all home loans are created equal. Conventional loans require its borrowers to put down at least a 5 to 10 percent minimum down payment on a home, and 20 percent maximum. When you are getting your mortgage through government-insured loans such as FHA, VA, or USDA which have smaller down payment requirements – despite its other very appealing features – you may get in trouble when it comes to convincing your seller to give you the deal. That is why if you are to choose between a government-backed mortgage and a conventional one while in a bidding war, it is wise to choose the latter. That would also help you save on costs in the long run.
Taking out contingencies
It’s a no-brainer. If you yourself have to choose between an offer that lets you do things first versus one that simply hands you the money directly, you would be more inclined to junk the conditions and opt for the easier way out. Waiving off certain contingencies in your offers such as the home inspection and the appraisal can help you grease the friction towards a positive end. However, if you want to deal smart and you have the money to back it up, you can still retain the contingencies while slightly increasing your down payment offer.
Bid wars can be a headache but if you know you have the resources to get around it, it certainly is winnable.
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