Real Estate Q&A: How to increase your buying power
YOUR JOURNEY HOME
Free Press Real Estate Columnist
Q: I am a couple of years out of graduate school and I really want to settle down and buy a house. I went to a mortgage company to get pre-qualified and they gave me a maximum house price they said I could afford; admittedly, it’s kind of low since my job is not a great-payer and I have student-loan debt. Besides just asking the seller of a house I’ve seen and like to reduce the price, are there other ways I can stretch my home buying capability?
A: Since a lot of homeowners bought houses when prices were much higher, like 2006-2009, those who choose to sell now are naturally attempting to get the best possible price to recover what they paid. The flip side of that, however, is that wages in our economy have been largely stagnant since a lot of oil and gas jobs left from 2010-2012. This puts people like yourself in a bind.
First off, let me suggest you work with both an experienced local lender and a Realtor who has experience negotiating aggressively on behalf of buyers. I suggest a local lender rather than say one online or from the Front Range because the local guy or gal will know many of the nuances, opportunities and challenges of our local market. Our market is distinctly different than that of the booming Front Range or the highly variable national home-sales spectrum. An experienced local Realtor will know what negotiation strategies and techniques are most often working successfully in our market
If your credit score is very strong the lender may be in a position to stretch your qualifying income-to-debt ratios, allowing you a little more buying power or range. Interest rates are so low that in recent years the idea of a seller buying down the interest rate for a buyer has just about completely disappeared from the lender’s toolbox. If you have parents or other relatives who can “gift” you money so that the loan amount for the purchase can be lowered, that may be another option. Your lender should be able to make specific suggestions about sources of “gift” funds and how those must be documented. Sometimes, it may be worth talking with more than one lender, running your particular scenario by them and seeing if a second or third opinion may result in different opportunities.
When you are ready to make a purchase offer, there are a few ways you may be able to cut some costs by way of the purchase contract. It’s fairly common for a buyer to ask the seller to pay some of the buyer’s closing costs. There are also particular loan programs that allow a seller to pay all a buyer’s closing costs, while other loan programs allow a seller to pay up to three percent of the purchase price in buyer-closing costs. The seller agreeing to pay these costs can save you cash at the time of closing so you have more money to put into a down-payment, lowering your loan amount slightly.
As a general rule the monthly payment, given our current interest rates, will vary by about $4-5 per $1,000 of the purchase price. That is to say, if you pay $5,000 more or less, for example, than a given price, your monthly payment will be approximately $40-50 more or less per month. That is useful information to know when negotiating on the actual purchase price.
If total monthly house-related expenses are the concern and you want to buy a property with homeowner’s association dues, a short-term aid might be to ask the seller to pay for the first six or 12 months of the HOA dues or fees for you. For example, if that fee is $100/month, the seller could help you by agreeing to pay that fee so you can have a little more cash available monthly to help you move in and get established as a new homeowner.
One more thought: If the seller will not accept your price and terms now, I suggest you wait and watch to see if the property stays on the market a few more weeks, a few more months, or longer. With the passage of time, the seller may become more flexible in their pricing or negotiations.
Free Press columnist Doug Van Etten is a local Realtor with Cherry Creek Properties, a Colorado-wide realty firm that recently opened a Grand Junction office. Van Etten has been helping home buyers, sellers and investors accomplish their real estate goals since 1992. To contact him, email DouglasVanEtten@gmail.com.
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