The toughest challenge facing people looking to purchase a home this year is other buyers. And the competition is especially rough among first-time buyers who are searching for houses in the lowest price ranges.
It doesn't help that the inventory of decent houses for sale is depleted. But when something affordable and in good condition comes along, investors with cash in hand often are first in line to seal the deal before would-be owner-occupants even find out about the place.
There's no sure way to beat your competition to the punch. According to a recent survey of agents affiliated with Redfin, some buyers have resorted to making offers on more than one house at a time to boost their chances of getting one of their offers accepted.
Here are some other ideas on how to come in first:
-- Get yourself in the hip pocket of a top producing agent in your favorite area of town. Agents are the first to know when a property comes on the market, and if they know they already have a buyer in hand, they may not even put it into the multiple listing service for the world to see. So tell the agent what you are looking for and make sure he or she understands you are not just out there kicking tires.
-- Cash usually wins out, so maybe you can make yourself an all-cash buyer by borrowing the entire purchase price from the Bank of Mom and Dad. Then, after you close on the house, you can finance the place and pay your folks back.
-- Absent that, try to level the playing field by going as far as you possibly can to get a mortgage from a lender before you actually find a house. That means getting pre-approved, not just pre-qualified. With the latter, the lender says you look good for purchasing a house up to X-amount. With the former, the lender's underwriters have gone over your application with a fine-tooth comb and committed to lending you X-amount, as long as the property appraises for what you want to borrow.
The commitment, which you should get in writing to show your seller, is conditioned, not just on an appraisal, but also on another look at your ability to repay. So once you are approved, don't do anything to upset the apple cart, like change jobs, move lots of money from one account to another, finance a new car or open a new charge account to buy a big-ticket item.
-- If you know pretty much where you want to buy, get out there and knock on doors. "That's the way my parents sold their house," says Rick Sharga of Tex-X, formerly Auction.com. And my cousin bought her first Florida house the same way.
You never know who might be interested in selling but has not yet decided to list their home. If you present yourself front and center as a ready, willing and able buyer, that may just be the deciding factor. Especially if the owner dreads the idea of having would-be buyers traipsing through his or her house during all hours of the day or night.
-- Make your offer as clean as possible. That means few, if any, contingencies. So don't make your offer dependent on selling your current house. The supply of houses for sale is so tight in many places that if your place is in decent shape, it should sell quickly anyway, so that shouldn't be a concern. If you have the financing lined up, that shouldn't be a worry, either. So cross off that rider.
For the most part, that leaves the home inspection contingency. Some buyers have agreed to forgo a home inspection altogether. That's not advisable. Without an inspection, you don't really know what you are buying. But you can find an inspector who's willing to move at a moment's notice, and offer to have the examination performed within 48 hours.
-- Don't look for the best bargains. That's where investors tend to hunt. If your competition plans to rent, they'll be willing to pay market prices. So be prepared to outbid them.
-- Many sellers are emotionally attached to their homes, so consider writing a letter to the seller outlining in comforting prose exactly how you plan to love and take care of their home as much as they do. Say how you plan to raise your family in the house, and attach pictures of your kids. If your are expecting, attach a picture of your ultrasound. Schmaltz, to be sure. But it sometimes works.
-- Check out the "first-look" websites listing foreclosed properties owned by giant mortgage investors Fannie Mae and Freddie Mac. Under government edict, these semi-public companies are required to offer their repossessed houses to first-time buyers for 20 days before anyone else can buy them.
There are some restrictions, though. With Fannie Mae's HomePath program, for example, you can't have owned your primary residence within the last three years, and you must go through an online buyer education course. Also, if you want to make a down payment of anything less than 20 percent, you must have a credit score of 660 or better.
-- Check the websites of companies like HomeVestors, the "We Buy Ugly Houses" outfit, or House Buyers of America. These companies and others buy houses on the cheap, anywhere from 50 to 60 percent of market value, from people who want to sell fast without any hassle, typically from sellers who have inherited houses they don't want.
They buy houses as-is, fix them up and resell them. "We put anywhere from $20,000 to $40,000 into them to fix them up and make them the nicest houses in the neighborhood," says David Hicks, co-president of HomeVestors.
A good number of the rehabilitated houses Hicks' 700 locally owned franchises sell go to other investors. Of course, they are resold at full value. But if you can get the ear of the franchisee in your area, maybe you can move up to first in line. Or better yet, if you can handle a "handyman special," maybe you can buy a place at a discount from an Ugly House or House Buyer franchise and save them the trouble of rehabbing the place.