Finding a housing deal in the middle of winter

The Savage Truth

It's the worst time to sell a house, in the midst of winter, the January blahs -- everyone knows that. But if it's the worst time to sell a house, isn't it perhaps the best time to buy a house?

Those who make the effort can score bargains from people who are desperate to sell, facing post-holiday bills, and/or planning to retire before living through another snowy winter! Here are a few tips for making your best deal:

  • Check your credit report. Even if you think your credit is great, there could be errors on your report. The time to check is before you start house shopping, so your great deal doesn't go down the drain while you try to fix those errors.
  • Get pre-approved for a loan. This has two benefits. You'll know how much house you can afford. And a pre-approval letter could make your low bid more attractive to the seller because they know you can close. According to Leslie Struthers, mortgage specialist at one of the nation's largest online mortgage brokers, GuaranteedRate.com, you can get a digital pre-approval quickly by applying online. Show that document to your broker, and you become a very qualified buyer!
  • Consider the mortgage type. Do you want a 30-year fixed rate mortgage, where you know the payments will stay the same over the long run (you can always add extra money to your monthly payment). Or do you want to save a small fortune in interest by paying more each month to get the loan paid off in 15 years at a lower rate? Or are you planning to move within a few years, and thus are able to risk taking an adjustable-rate loan with its lower starting rates? Currently, according to Guaranteed Rate, a 30-year mortgage carries a fixed rate of 4.17 percent APR, while the 15-year fixed has a 3.31 percent APR, and the 5-year ARM has a 3.38 percent APR. And you may qualify for other loans, such as FHA or your state's "first-time homebuyer" plans, or a VA loan, currently 3.75 percent. These rates may change, but this should give you an idea of the relationship between different types of loans. Remember to always compare the annual percentage rate (APR) figures.
  • Don't worry about the Fed and "high rates." If you take a longer look at history, you can see that we still have historically low mortgage rates. Back in the early 1980s, people took out mortgages at 13 percent or higher. In fact, the fear of higher rates scared off so many buyers that they were able to get bargain prices -- and then refinanced their high-rate loans when the interest rate cycle declined. Once again, many of today's buyers are thinking they've "missed their chance" at low rates when, in fact, a step-up in rates gives them leverage to make a lower bid on the price.
  • Organize the money! You know you'll need the down payment, likely at least 20 percent of the purchase price to avoid paying mortgage insurance premiums to the lender. But have you also considered the closing costs? Depending on your state of residence, that could be as much as 2 percent to 3 percent of the purchase price, unless you negotiate for the seller to pay some of those fees. They include appraisals, inspection fees and possibly a sales transfer tax. And don't forget your own attorney's fees! Will this transaction wipe out all of your available cash? That would be a mistake, because there will be moving expenses and some redecorating to do. Plus, lenders like to see that you have some cash in reserve for emergencies that always arise when you own a home.

Get all these issues organized before you rush out and fall in love with the "perfect" home, so you aren't crushed to realize that a more prepared buyer beat you out of a great deal. Americans seem to have lost some of their zeal for home-ownership after the financial crisis of 2008. That's why there are still bargains available -- and this is the season to find them. That's The Savage Truth.

Terry Savage is a registered investment adviser and the author of four best-selling books, including "The Savage Truth on Money." Terry responds to questions on her blog at TerrySavage.com.

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