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4 questions to ask yourself when buying a house in a tight real estate market

Getting an offer accepted on a personal or investment home continues to be a challenge across much of the country. Inventory is tight, home prices are up, and some prospective buyers are finding it difficult to get their bids to stand out from the crowd.  

“Housing-market fundamentals remain very much in the favor of current owners, to the detriment of prospective owners,” says Ameriprise Financial Chief Economist Russell Price. “This imbalance is likely to remain in place for quite some time — possibly years.”

Here are four questions to ask yourself when buying in a tight housing market:

1. Are my finances lined up?

Availability is close to historic lows, and offers higher than asking price are common. Amid the surge of buyers, you’ll have to move quickly — and that means having your finances ready to go. Consider the following:

  • Budget. Be realistic about how much you can afford — and stick with that plan.
  • Credit score. Higher credit scores could help lower your interest rate.
  • Down payment. A larger down payment will reduce your monthly mortgage payment and potentially make your offer more attractive to the seller.
  • Mortgage pre-approval. This tells sellers you’re serious about buying and have the means.

2. Is this the right purchase for me?

Finding a property in a tight real estate market with every detail you want may be more difficult, but you can still find one you feel excited about. Ahead of time, define your priorities and compromises to focus and streamline your efforts.

As you contemplate a purchase, consider your other financial goals. Maybe early retirement is also a priority — or perhaps generating passive rental property income is at the top of your list. It can be easy to get swept up in the frenzy of a tight housing market, so it’s important to keep your financial goals top of mind during this process.

3. Am I comfortable with the ongoing expenses?

Beyond the actual sale price and closing costs, you’ll need to factor in recurring costs:

  • Property taxes
  • Insurance
  • Maintenance
  • Updates or remodels
  • Association fees (if applicable)

Unexpected expenses could always arise, such as replacing a furnace or uncovering a plumbing or electrical issue. Consider maintaining an emergency cash reserve for at least three to six months of living expenses to help in these types of situations. Your financial advisor can also recommend a specific amount appropriate for your situation.

4. Can I make a competitive offer?

Prepare to bid competitively to make your offer stand out. But remain pragmatic and know your limits — both financially and risk-wise. Here are strategies buyers have been leveraging in some areas of the country:

  • Offers above asking price
  • All-cash offers
  • Accommodations for the seller’s closing date or move-out timeline

Sellers in certain areas might prioritize all-cash offers. If appropriate for your situation, a margin loan or pledge loan could provide you with the necessary liquidity.

Get ready to make your move

Securing a new property can be even more rewarding when you feel confident about your choice. An Ameriprise financial advisor can help you understand the financial implications of a real estate purchase.

Ameriprise Financial cannot guarantee future financial results.

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.

Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

Ameriprise Financial Services, LLC. Member FINRA and SIPC.