Editor’s note: This story originally ran on our sister site, CultureMap Austin, with advice from Realtors in the Texas capital. But because the housing market is hot all over Texas — and, thankfully, Dallas has seen a recent uptick in inventory — there is some good advice here for local homebuyers too, especially for those searching for their first home.
Hire your own broker
Hire a broker who will do the legwork for you. He or she can help determine what you can afford and then find great houses in your price range in the neighborhoods you want. You’re going to be paying a broker’s fee in the sales price regardless, so don’t use only the seller’s broker, who legally represents the interests of only the seller. Interview several agents to find the right fit, advises Realtor Ann Wheeler of Gottesman Residential in Austin. A good agent can help you find listings that meets your needs as soon as they come on the market, giving you a leg up in beating other buyers to the house.
Get pre-qualified or pre-approved for financing
In Dallas, the demand for homes is high, and good listings are getting snatched up quickly. Being pre-qualified is a preliminary step that tells the seller that your income and credit have been looked at, and, based on what the lender knows from that, you are qualified to purchase a home at a certain price. A pre-approval is generally a more in-depth process and may be a good idea, especially if you are self employed. Being pre-approved means that you have a loan already arranged, which will make you one of the best candidates when a seller is selecting among competing buyers, says Linda Welsh of the Linda Welsh Group at Keller Williams Realty in Austin.
Be prepared to put 10-20 percent down
Depending on the price and your credit score, that’s the going amount of down payment in cash typically needed for standard mortgages for buying an existing home. However, if you buy a new home from a builder, they may be able to provide special builder financing for closer to 5 percent down. And the builder may offer some incentives such as paying closing costs or getting you a better interest rate.
Don’t forget to calculate property taxes
As home prices have gone up in Dallas, so too have property tax appraisals, and that translates to significantly higher annual property taxes. Be sure to calculate that into your monthly payment (your Realtor can help do the math), or as an annual payment due at the end of the year on some loans. It can be quite a sticker shock.
The appraisal is the key
The mortgage company will not lend you the money unless an appraisal is done that meets the contract price. They will especially look at recent comparable home sales in the immediate area. With increasing home prices in Dallas, the “for sale” price on a home may exceed recent comparable sales in the same neighborhood. This is a significant problem in getting loans for houses in the hot local market and may cause the sale to fall through, or you may find yourself renegotiating the price of the home or agreeing to come up with more cash down payment.
Ask about owner financing
If buying a resale home, ask if the owner will “owner finance” a portion of the home price. Many sellers who have lived in their homes for a long time have a considerable amount of equity in their homes. If they sell and don’t reinvest their proceeds, they have to pay taxes on a portion of the gain, so the seller might consider financing a portion of the sale price to you, explains Welsh.
Make your best offer
It’s not uncommon for a seller to receive multiple offers, some even higher than the original asking price. If you want the house, you probably won’t get a second chance, so make sure your offer is one you’ll feel good about if someone else’s offer is accepted. You don’t want to say, 'I wish I had' after another offer has been accepted because by then it is too late, explains Wheeler.
Buy in a hot neighborhood
Look for the hottest neighborhoods that still have housing availability. Remember the three rules of real estate are still “location, location, location,” says Wheeler. In addition to the always-hot neighborhoods like Lakewood or Preston Hollow, there are a number of neighborhoods, such as Midway Hollow, that are jumping in popularity because of their close-in locations. Your broker can help you find one that’s right for you.
Consider the schools
Even if you don’t have kids, the quality of the schools will make a big difference when it comes time to sell your home. Districts like Highland Park or Southlake-Carroll are standouts, but there are great schools located within all districts. Check out the schools in your target area at www.greatschools.org, advises Welsh.
Weigh the costs of owning vs. renting
With rental prices on the rise, and interest rates on home loans hovering between 4-5 percent, owning can often be cheaper than renting, notes Wheeler. But coming up with a large cash down payment may be intimidating. If there is a good chance that you may be moving out of the area within the next two years, then renting is probably a better way to go. The costs associated with selling your home can be more than you might expect in appreciation even in a normal market.
