In a tough market, people are looking for any way they can to save a little on real estate transactions.   Many are resorting to FSBO (for sale by owner) listings.  Others are negotiating down real estate agent commissions.  One place I would not scrimp when looking to buy a home is hiring a buyer’s agent, and here are few reasons why I believe hiring a real estate agent is a smart move.

Benefits of Hiring a Buyer’s Agent

Narrow listings based on your needs.  Let’s face it, there are a lot of homes for sale around the country, and even in your local community.  Who has time to sift through all the listings and identify those within your price range, in the school zone you are interested in, and with the features you are looking for.  That’s exactly what a buyer’s agent can offer.

Coordinates showings with seller’s agent or homeowners. Another time-saving advantage of hiring a buyer’s agent is getting their help with coordinating a viewing of a particular house of interest.  Often the buyer’s agent scheduled a time with seller’s agent for you to view the home, and if the home is listed with a Realtor, has access to the property via a lockbox.

Buyer’s agents work on your behalf.  In my experience, a good buyer’s agents have your best interest at heart when buying a home. They will steer you clear of any potential legal pitfalls, help you compile statistics such as the sales history of the home, it’s tax records, etc.  Sharing one agent between two parties is not advisable.

Help negotiate final purchase price and seller concessions.  Unless you are great with negotiating skills, and navigating real estate contracts, it is a good idea to hire a buyer’s agent to help you through.  Often times two agents working together can help buyers and sellers work through price negotiations and concessions such as closing costs, allowances, etc.

Guide you the legal hurdles. Short of hiring a real estate attorney to represent you at closing (something else I recommend), your best legal advise will likely come from a buyer’s agent.   Again, they are particularly good at guiding you through the contract negotiations, establishing insurance, etc.

One of the more difficult aspects of buying a new home is saving for a down payment.  Most lenders require at least a 5% down payment on conventional mortgages, and because most people don’t have $10,000 sitting around it takes some effort to save up for a down payment.  Here are a few ways to make saving for a down payment a little easier.

Set Intermediate Goals.  If your goal down payment is $10,000, put a suspense date on your goal.  For example, define your goal like this, “I will save $10,000 in six months for a down payment towards our home.”  To make sure you hit the intended target, break that goal down into milestones such as $3,333 in two months, another $3,333 (for a total balance of $6,666) at the four-month mark, and another $3,333 to reach the target amount of $10,000 in six months.

Create a wall chart.  I am a visual person.  I like to create spreadsheets and graphs and track (to the point of being obsessive) numbers when chasing a financial goal.  In the past I’ve created a huge chart with our total debt remaining as a bar graph so I could fill in a little less each month and I paid off the debt.

Use this same idea in reverse.  Create a bar graph beginning with the current month and your current savings balance.  Increase the bars in future months to see your progress, and go ahead and fill in the bar for your target month with the full goal amount shaded in.

Put savings on autopilot, but take the controls every now and then.  Try to automate as much of your savings plan as possible, but occasionally toss in a little extra cash when you receive any “found” money, such as small inheritances, windfalls, bonuses, gifts, etc.  We currently have our down payment savings fund on autopilot–$385 each week for the next 26 weeks should yield our intended target savings amount of $10,000 in six months.

Before we get too far ahead in our quest to downsize homes, I thought it would be good for all involved if we first got prequalified on an amount well within our frugal household budget.  We submitted a mortgage application with a credit union we’ve been members of for many years and will hopefully hear something back from them next week.

The mortgage we applied for requires only 5% down with no PMI, something that is attractive to us since we don’t have a lot of cash to put down until our other house sells.  When it does, we’ll probably just put it on the mortgage balance so we can pay it off fast.

15-Year Versus 30-Year Mortgage

Though we are taking out a 30-year mortgage we plan to pay off the new house in ten years.  It’s an aggressive plan, but one we think we can hit from downsizing, using a little equity from our current home, and devoting some additional income to prepay the mortgage.

Payment Less Than 20% Of Income

To guarantee plenty of disposable income we are planning to bid on a home that will leave 80% of our monthly take-home pay available for other things.  Lenders will typically loan more than this, sometimes up to 28% of your gross income, but for us this would not leave enough money for other goals (though some months we will be dedicating much more than this to extra payments).

Hopefully, we will get some good news on pre-qualification and can start looking at houses in our price range next week.