Do You Need Private Mortgage Insurance?

Do You Need Private Mortgage Insurance?

Coming Up With Your Initial Offer When Buying A House

by Luke Fields

Buying a house is a difficult process filled with tricky decisions. One of the most important--and misunderstood--decision in this process is your initial offer to the seller. Sure, you could make things easy on yourself and just pay the seller's asking price. In fact, that's the correct play in certain situations. However, in other circumstances, it's a costly mistake.

That makes knowing how to create your initial offer critical to getting a good deal. Fortunately, the process isn't that difficult if you follow a few simple steps.

Step #1--Determine The Current Selling Climate

The real estate market is a fickle, localized thing. In some areas, a seller's asking price is often designed around a significant amount of negotiation. In others, the seller isn't really expecting to negotiate at all. Also, the health of the market can cause a seller's willingness to haggle to vary significantly.

To deal with this, you'll have to figure out what's currently happening in your area. Your realtor can be a good resource for this, but you should also look at recent sales in and around your target area. Use the difference between asking and selling price as a guide and look for trends and commonalities among the sales.

Step #2--Assess Your Tolerance Levels

Buying a house is largely a matter of personal tolerance. The things you must tolerate to make a transaction include:

  • The mortgage payment
  • The new home's location and aesthetic
  • The possibility of losing the home to a higher offer

These factors should all drive your decision making process when constructing your initial offer. If the market is hot and you cannot tolerate living anywhere else but in this specific home, you need to make a high initial offer. If a number of homes fit the bill, it's a good idea to come in low. Ultimately, your offer should help you increase your comfort during the buying process, not reduce it.

Step #3--Take Stock of Your Finances

The amount of cash you have to close this real estate deal is an important factor when constructing your offer. Basically, you'll need to determine how much money that you need the seller to give back as a concession. This concession money can be used to cover all of your prepaids and origination fees on your new mortgage--leaving you with cash in your pocket.

However, your home must have an appraisal value equal to or greater than the purchase price. That means you can't simply tack on 5% to the seller's price and expect the sale to work. In simple terms, if you need a large concession because you don't have a lot of cash on hand, your initial offer should be a low one.

Step #4--Put It In Perspective

No matter what you end up settling on as far as a purchase price is concerned, your life in your new home won't be dramatically different. While a difference of $10,000 seems like a lot of money, your mortgage won't be impacted all that much. It's likely that your negotiations will yield a net impact of less than $30 each month when your payment is calculated.

It's a good idea to remind yourself of this as you're finalizing your offer. Sure, it's important to enter into the transaction from a strong place that sets your family up for financial success. It's probably not worth breaking a deal over five dollars a month, though.

Above all, remember that your initial offer is something that you need to be comfortable with. It doesn't really matter what local rules of thumb or the current real estate market is--if you aren't comfortable with the offer, you won't be comfortable with the purchase. So, do your research and make sure that your offer is one that you can live with.


About Me

Do You Need Private Mortgage Insurance?

Welcome to my website. My name is Larry Silva, and I want to talk a bit about private mortgage insurance. You may have heard the term PMI mentioned when you were in the process of purchasing real estate. When I first heard my lender talking about PMI, I was very confused. It was my realtor who sat me down and explained what private mortgage insurance was and when someone is required to purchase it. He told me that PMI is not lifelong insurance; it can be cancelled when the mortgage principal balance reaches a certain point. Once it was explained to me, private mortgage insurance was no longer a mystery or a confusing concept. I would like to pass on what I learned and hope that you find it to be of value.