Making the right offer is one of the most important part of the home buying process. Experts advise all homebuyers to find out home prices in an area and set their own reservation price, or the maximum price they are willing to pay for a home. A reservation price actually helps homebuyers in negotiating with the seller and stay within their budget when making an offer.
It is customary for homebuyers to discount their initial offering price to create some room for negotiations, according to Barron's 'Smart Consumer Guide to Home Buying'. There is however, no rule on how much a homebuyer can discount the offer. It largely depends on your level of desire for the home and on market conditions.
Here is a basic process for calculating your reservation price so you can negotiate the best price for your dream home:
1. Write down the amount you can afford to pay each month. This may be close to what you are paying now, or what you are comfortably willing to spend per month on housing costs.
2. Calculate tax and insurance costs. Barron's 'Smart Consumer Guide to Home Buying' offers the following suggestions for calculating tax and insurance rates. Use a factor of .68 for areas with high tax and insurance costs; .85 if tax and insurance is relatively inexpensive; or use the standard .75 for a rough estimate. Multiplying this rate by the amount in Step 1 will give you your affordable loan P&I payment.
3. Calculate your loan term and interest rate. Record your loan term and interest rate in years. Use the loan payment tables to locate the payment applicable to each loan term and interest rate.
4. Know your total loan amount. This information can also be found in the loan payment table, or you can simply ask your mortgage lender.
5. Add your cash on hand for the down payment. This will give you a final calculation of the total amount available to you for purchasing a home.
After completing the calculation in Step 5, you can compare it to Step 1 and see what the difference is. This will give you your negotiating range that you can use when making your offer. If the amount in Step 1 is higher than Step 5, you may be able to secure an offer by bidding a higher price than the seller is offering. If the amount in Step 1 is lower than Step 5, you'll need to focus on bringing the final price down to a more affordable range.
Calculating your reservation price is an important part of the homebuying process and can help you negotiate the best possible deal for your situation and get the home you want. Consider using the above calculations for each home you are considering so you have the confidence to overbid or negotiate for a lower price with your budget in mind. - 31385
It is customary for homebuyers to discount their initial offering price to create some room for negotiations, according to Barron's 'Smart Consumer Guide to Home Buying'. There is however, no rule on how much a homebuyer can discount the offer. It largely depends on your level of desire for the home and on market conditions.
Here is a basic process for calculating your reservation price so you can negotiate the best price for your dream home:
1. Write down the amount you can afford to pay each month. This may be close to what you are paying now, or what you are comfortably willing to spend per month on housing costs.
2. Calculate tax and insurance costs. Barron's 'Smart Consumer Guide to Home Buying' offers the following suggestions for calculating tax and insurance rates. Use a factor of .68 for areas with high tax and insurance costs; .85 if tax and insurance is relatively inexpensive; or use the standard .75 for a rough estimate. Multiplying this rate by the amount in Step 1 will give you your affordable loan P&I payment.
3. Calculate your loan term and interest rate. Record your loan term and interest rate in years. Use the loan payment tables to locate the payment applicable to each loan term and interest rate.
4. Know your total loan amount. This information can also be found in the loan payment table, or you can simply ask your mortgage lender.
5. Add your cash on hand for the down payment. This will give you a final calculation of the total amount available to you for purchasing a home.
After completing the calculation in Step 5, you can compare it to Step 1 and see what the difference is. This will give you your negotiating range that you can use when making your offer. If the amount in Step 1 is higher than Step 5, you may be able to secure an offer by bidding a higher price than the seller is offering. If the amount in Step 1 is lower than Step 5, you'll need to focus on bringing the final price down to a more affordable range.
Calculating your reservation price is an important part of the homebuying process and can help you negotiate the best possible deal for your situation and get the home you want. Consider using the above calculations for each home you are considering so you have the confidence to overbid or negotiate for a lower price with your budget in mind. - 31385
About the Author:
When looking for MN houses for sale, the internet is an invaluable resource. New homebuyers can use the MN MLS to view the active-listings of properties throughout the state.
