Buying a home is stressful enough on a good day, but trying to navigate a market where prices are climbing and inventory is shrinking can feel overwhelming. You might be wondering if you'll ever find the right place or if you're destined to lose every bidding war.
It's okay to feel frustration, but it's important to remember that your home is part of your larger life roadmap. If buying is the right move for your goals, you can navigate even the hottest market with the right preparation.
What does a "hot real estate" market mean?
Simply put, a "hot" market is a seller's market. It means there are more buyers than there are homes for sale. This imbalance causes prices to rise faster than historical averages and gives sellers the upper hand during negotiations.
For you, this means you need to be prepared for competition. You might see multiple offers on a single property, and you may have to offer over the asking price or make other concessions to secure a deal. These markets are usually caused by a mix of low interest rates, inventory shortages, or an influx of buyers into a desirable area.
Here are eight tips to help you keep your cool and succeed.
1. Get crystal clear on what you want
Emotions run high in a competitive market. It's incredibly easy to sacrifice important needs just to get the relief of finally closing a deal. However, compromising too much is a fast path to regret.
Before you look, create a list of non-negotiables. You rarely find a "perfect" home, so knowing where you can compromise and where you can't is vital. This ensures that when you do buy, you're happy with the result for the long haul.
Common non-negotiables might include:
- School district
- Number of bedrooms
- Home office space
- Outdoor space
- Walkability
2. Build your dream team
Navigating this process alone is complicated and stressful. You need a team of professionals to guide you through the noise.
Your team should generally include three key players:
- A Realtor® or agent: They help you navigate local pricing and structure your offer.
- A loan officer: They help you understand mortgage options (like 15-year vs. 30-year) and down payment flexibility.
- A financial planner: They help you prepare for the purchase and ensure this massive decision fits into your broader financial picture.
3. Know what you can really afford
There is a big difference between what a bank says you can afford and what you should actually spend.
A bank might approve you for a monthly mortgage payment of up to 43% of your gross income (income before taxes). However, spending nearly half your income on a mortgage usually isn't the best financial move.
A better rule of thumb is the 28% rule. Ideally, your monthly mortgage payment—including principal, interest, taxes, and insurance—should be no more than 28% of your gross monthly income.
Doing this math upfront helps you keep emotions out of the equation when you're tempted to make a high offer.
4. Get pre-approved
Pre-approval is when a lender looks at your finances and tells you the maximum amount they are willing to lend you. This puts you in a position of strength because sellers know your offer isn't contingent on getting approved later.
However, buyer beware. As we mentioned, lenders may approve you for more than you can comfortably afford. Remember this rule: approval does not mean affordable. You are not obligated to borrow the full amount they offer you.
5. Have cash for the down payment and closing costs
In real estate, cash is king. You need to be prepared for two major expenses at the closing table.
First is the down payment. Saving 20% is a smart move because it helps you avoid mortgage insurance, which is an added monthly cost. However, it isn't strictly required. Federal Housing Administration (FHA) loans potentially require only 3.5% down, and Veterans Affairs (VA) loans may require 0% down.
Second, don't forget closing costs. These can catch buyers off guard. Depending on where you live, you might pay anywhere from 2-5% of the home purchase price in closing costs. For a $500,000 home, that could mean an extra $25,000 in cash is needed to close the deal.
6. Make a strong but smart offer
The listing price is not always the true value of the home. In a hot market, sellers often price homes to elicit a bidding war. Your real estate agent can help you calculate a fair offer, but you must know your limit.
Offering too much puts you at risk of an appraisal gap. This happens when the lender decides the home is worth less than what you offered to pay. You would then need to come up with extra cash to cover the difference.
Also, be very careful about waiving rights to an inspection. It may make your offer look attractive, but inheriting a home with major structural issues could cost you thousands later.
7. Go with a fixer-upper
New, move-in-ready homes attract the most competition because most buyers don't want the hassle of renovations. If you're willing to do some work, looking at "fixer-uppers" can be a great strategy.
You will likely face fewer competing offers and can often purchase the home for a lower price. This allows you to build value over time and customize the home to your specific style. Just remember that renovations require patience and extra cash.
8. Be patient and know when to walk away
This process will test your patience. You may lose out on a house you loved, and that frustration can push you to make hasty decisions. Focus on what you can control.
Here are some big things to avoid, no matter how hot the market gets:
- Don't waive an appraisal: This could force you to bring significantly more money to the closing table.
- Don't waive a home inspection: This is a financial safety net you shouldn't give up.
- Don't take out a loan that's too big: If you can't put 20% down because the price is too high, think twice before locking yourself into a higher monthly payment.
The Facet Difference
At Facet, we believe your home is more than an asset; it's the setting for your life. That's why we don't just look at the numbers. We look at how a home purchase fits into your entire life roadmap.
Our team of CFP® professionals works with you to ensure you aren't just getting approved for a loan, but that you're making a purchase that supports your long-term wellness. With our flat-fee membership model, we don't make commissions on the products we recommend. Our only incentive is to help you make the best decision for your life and your values.
