What is the Maximum Price I Can Afford for a House?
Imagine you find your dream home: It has a pool, a second-floor terrace and a home office that gets just the right amount of natural sunlight. But it’s at the top of your price range, and even if you offer as much as you possibly can, it’s likely that you’ll get outbid by another buyer.
That can be heartbreaking, but is increasingly common for homebuyers. Last year, more than 20% of homes sold in the U.S. went for more than their advertised list price, according to real estate information company Zillow.
It’s difficult, but it’s all a part of the homebuying process. It’s important to figure out the maximum price you can afford for a home, and think about what you can do to get a seller’s attention if you’re outbid. In that situation it’s not always easy to prevail, but it can be done.
Case in point: A home recently sold in which the prospective buyer, a medical specialist, made an offer that wasn’t quite as attractive as some other offers the seller had received. But this prospective buyer was sure to include something extra with their offer: Their biography, and a personalized letter. The seller’s father is a retired physician, and – wouldn’t you know it – he had the exact same specialty as the would-be buyer. The two made a personal connection, and the buyer ended up getting the home.
Obviously, not all buyers are going to be fortunate enough to find themselves with a special, if not unexpected, connection with a seller, but often it can be something as small as sharing the same alma mater. Even so, there are things you can do to make yourself stand out, even if you’re tapped out financially.
However, it all starts by figuring out what or how much you can afford to spend.
Figuring Out the Maximum Price You Can Afford for a House
Before you start worrying about ways to sweeten the pot, it’s important to figure out what your maximum offer could be for a new home – that dollar figure might be enough to close the deal, after all.
Figuring out what you can afford requires some homework. Look at your budget, your savings, investments and figure out not only what you can afford for a down payment, but what you can afford as a monthly mortgage payment. And don’t forget insurance and taxes.
Consider speaking with a mortgage broker or banker. This is a wise first step for most prospective homeowners, as it’ll give you an idea of what your mortgage options are, in addition to laying out a range of affordability.
Of course, if you’ve been saving up and can afford to make an all-cash offer, then it may be best to speak with a financial advisor. They can also help you understand what you can actually afford to pay for a house without spreading your assets too thin, or causing you to readjust your lifestyle.
But most prospective buyers are probably looking for a mortgage, and have a limited amount that they can afford to both put down and pay on a monthly basis. After speaking with a professional or doing your own number-crunching to figure out your maximum possible offer, start thinking of how to stand out in a competitive market.
Outbid? Ways to Sweeten the Pot
Getting an idea of what you can afford for a home is the more straightforward part. Now, you’ll need to get creative. Or at the very least, get organized.
When it comes to crafting an offer on a home, the first thing buyers should do is get their ducks in a row: Have your mortgage preapproval ready, and get any financial statements or documents you may need all set. Those are two relatively simple things you can do right off the bat – some buyers may want to make an offer without having taken these steps, and it can turn a seller off, or cause them to lose out to a quicker, more organized bidder.
But after you’ve done those two things, your job is to present yourself in the best possible light and try a few things to make your offer memorable. Here’s what can generally help you:
Include your biography. Including your biography – some basic information about yourself – may help forge a personal connection with a seller that could end up making your offer more competitive and compelling.
Write a personal note. Similar to including a biography with your offer, a personal note addressed to the seller can create a touch-point, and possibly tug on some heartstrings. Here’s a basic format for writing a letter to a seller: Tell them that you appreciate the opportunity to make an offer, what you appreciate about their property, add a bit about yourself and your hopes for the property, and then flatter them. Don’t be afraid to go through a few drafts to make it perfect.
Throw in some extras. While it won’t always work, you can even try literally sweetening the offer by sending along some cookies or flowers to the seller. It may sound like a long shot, but it works. A buyer sending a seller an orchid and some macaroons can help win in a competitive bidding situation.
Be flexible. This one is really important. Buyers who can’t outbid the competition may need to lean on their flexibility instead. That may include things like being willing to waive contingencies, which can help close a deal faster. Again, this will depend on the specific circumstances with the seller, but if you’re flexible, it can be a sign to a seller that you’re the right buyer to work with.
Before you do anything else, sit down and figure out what your price range is. You need to know what your absolute maximum offer can or should be before hitting the market. It’s when you’re financially tapped out that you may need to dig into your bag of tricks and tactics to win a bidding war.
In a real estate market that’s as hot as it is right now, almost anything can help.