Top 5 Tips on How to Buy a Home in an Ever-Changing Market

With mortgage interest rates trending upwards and home values inching up as well, home affordability for the average American home buyer is becoming harder.

According to a recently released housing affordability index (an index compiled by the National Association of Home Builders and Wells Fargo), home affordability has fallen below 70% for the first time since 2008. That’s significantly lower than from late 2011, when affordability peaked at 78%.

But it’s not all gloom and doom for home buyers: when compared to the bubble years, housing is still considered a bargain. You have to keep in mind that at one point in 2006, only about 40% of homes sold were considered affordable.

So with rates and prices heading up, what’s a home buyer to do?

Here are five smart steps to ensure that you can compete in this ever-shifting housing market:

1.      Ask Your Lender About an FHA Loan

FHA loans have been helping people become homeowners since 1934. The Federal Housing Administration (FHA) which is part of the federal department of Housing & Urban Development (HUD) insures the loan so your lender can offer you a better deal. If you qualify for an FHA loan you can get lower down payments; lower closing costs; and easier credit qualifying. For more details, go to http://1.usa.gov/1a1RN5b

2.      Hire a Realtor

I realize this tip smacks of self-promotion since I’m a Realtor myself, but honestly the best way to ensure getting the home of your dreams is not to conduct the search on your own. While all Realtors are real estate agents, not all real estate agents are Realtors.

Although both are licensed to sell real estate, the basic difference between a real estate agent and a Realtor is that a Realtor is a member of the National Association of Realtors (NAR) and, as such, the main difference that you hear a lot about -- but are likely confused about -- is that a Realtor must subscribe to the Realtor Code of Ethics.

The Code of Ethics is strictly enforced and it’s not just a bunch of rules that agents swear to uphold and adhere to. While there’s no evidence nor any guarantee that all Realtors are morally or ethically better than unaffiliated agents, it’s genuinely an attempt by the industry to hold Realtors to higher standards.

3.      Follow Your Instincts

If any property’s price seems too good to be true, then there’s probably a legitimate reason…or maybe not. Work with your Realtor to uncover the market history of the home; question the price reductions; ask about any major structural or property-related issues; etc. The sharp price reductions might signal some hidden factors that you don’t want to uncover after you’ve moved into the house.

4.      Outsmart the Competition

There are many ways to win in a bidding war for a home but the primary reason you will or won’t get your offer accepted is the pre-approval letter. Be smart and have your pre-approval status with your lender up to date and ready when you are. Additionally, providing a closing date that works in the sellers’ favor is a big plus in outbidding the other buyers. When it’s appropriate write a letter of introduction to the homeowners and include photos of yourself and your family. Make sure that your agent submits a typed offer; nothing turns off a homeowner more than a handwritten, barely legible offer. And, don’t delay when responding to a counteroffer; show that you’re serious about purchasing their home and get right back to them.

5.      Be Prepared to Walk Away

There’s a home out there for everyone so don’t despair if you can’t seem to find just the right property. Surveys have shown that on average most home buyers spend approximately 12 weeks house-hunting and see about 14 homes before selecting THE ONE.

That’s not to say that some buyers don’t spend much more time and look at many more homes that these statistics indicate but they do give you a good sense of what most are doing. If you do find yourself looking at way too many homes, stop looking. Take the time to reassess what you’re looking for and also to take a good look at what you can comfortably afford.

Michael A. Pallares is a licensed Boston-based Realtor

specializing in first-time home buyers and relocation clients.

For help buying or selling a home, contact Michael at

www.GoHomeWithMichael.com or call him at (617) 899-3162.