How to Not Overpay for a Home in Montgomery County, MD

1. Know the Market

Knowing your local market and how much the home you’re interested in purchasing has sold for in the past is key to getting the best estimate of how much the home is probably worth. Keep in mind, home pricing is an art and not a science, sellers may have an asking price for their home based on how far it is from the metro, how much work they have invested in the property, and even how large of a lot they sit on- anything that distinguishes the home from others that are on the market. As a buyer, you should place your own value on what makes the home special that you’re purchasing in conjunction with recent sales to come up with what you think the house is worth. Have a realistic price in mind that matches both the market and your budget, leave a little wiggle room for negotiations and it’s a great strategy to not overpay for the home you want.

2. Have an Appraisal Contingency

This is an absolute must have in your offer. An appraisal contingency is a clause in the sales contract that protects the buyer from overvaluing a home and only allows the lender to fund the mortgage based on the appraisal. It works like this; Buyer finds their dream home and their offer of $400,000 gets accepted by Seller. Buyer and Buyer’s Realtor were smart enough to write in the contract an appraisal contingency, so when Buyer had appraisal done the price of the home came back at $385,000. Buyer’s lender will only give them a mortgage based off the $385,000 sales price and not the $400,000 sales price, Buyer and Buyer’s Agent go back and re-negotiate with Seller on price and are able to do so by specific time frame because they had an appraisal contingency in the contract. In Montgomery County, this is very normal practice to have an appraisal contingency in most sales contracts, and it’s a great way to protect buyers from not overpaying for a home.

3. Know how long you will Live in the House

Before you get started with your home search, one of the things you should consider figuring out is how long you will live in your new home. This is important because the length of time you spend in the home will help determine how much equity you earn through paying down your mortgage payments every month and appreciation. And of course, if you pay for the house in all cash, you can skip to the next step- but for the ones who end up getting a mortgage on the property, you will mostly pay interest in the first several years of ownership. If you don’t want to overpay for the house, living in your home for longer can usually ensure that your home values will appreciate over time (the longer the better) and you will pay down your mortgage actually eating away at the principal payments instead of interest, this will hopefully give you financially reassurance when you go to sell the property in the future, so you won’t feel like you made a really expensive mistake.

4. Shop for your Mortgage

Not all lenders were created equal. Banks, mortgage lenders, and mortgage brokers all have to abide by Federal regulations and rules but each can offer different types of programs for down payment or closing cost assistance, different interest rates, and some have more flexible terms than others. Most buyers will start off the home buying process with getting pre-approved by their banking institution, but you shouldn’t stop there. This might be a great start to see how much you can qualify for but know that you’re not obligated to go with that lender just because you get pre-approved from that institution. Even while you are under contract you have the right to switch lenders if you find more suitable terms that will save you money in the long run. Also, many realtors have great relationships with lenders that they’ve formed and can usually give you a recommendation based off your specific needs.

5. Avoid Buyer’s Fatigue

This might sound like an odd reason to overpay for a home, but Buyer’s Fatigue is real. Buyer’s fatigue is described as Buyers who get “burnt out” by looking for their dream home, either they are not able to find what they’re looking for within their budget and have seen 100 homes or in a hot seller’s market they find themselves in bidding wars and having to put in several offers in before they’re able to find the right place. When buyer’s fatigue sets in, many Buyers get so tired of the home search they end up settling and over paying for a home. To avoid this, employ some of the previous tactics discussed and also reset with a new perspective on your search. Hit the reset button and look at your search with fresh eyes; maybe for what you’re looking for you should increase your budget, maybe you should save more money for closing costs, or maybe you should start with your best and strongest offer first when you find the place you want to call home!