In a large part of the country, the real estate market is booming. Somehow interest rates are still incredibly low and we’ve finally burned through all that excess foreclosure inventory from the 2008 crash.

It’s created a pretty fantastic dynamic for sellers looking to move up in home and a great opportunity for buyers to get into a house with a historically low interest rate. And this combination has caused home values to rise, homes to sell fast, and sellers getting multiple offers on their listings.

Want to really screw up a home purchase?

Jump into this type of market without a solid financial foundation.

In a real estate world with competing multiple offers there are 2 types of offers that get chosen.

The first is the one that offers near the list price, has a large amount of cash, like 10%, 20%, or 50% as a down payment, has a conventional loan pre-approval and doesn’t ask for much seller assistance. A seller views this offer as a safe bet. As they look over the offer they don’t find any indications that this type of offer will fall apart and not close on the house.

The second type of offer accepted is the buyer that offers a substantial amount over the list price, because they are rolling their closing costs into the loan. Their down payment is the minimum the bank requires for an FHA loan. They need the seller to contribute to their closing costs. They don’t offer up much in the form of earnest money. Basically their offer screams to the seller that they don’t have much money, and barely qualify for the house. The only reason a seller would gamble with this offer is because the buyer is willing to pay $3,000, $4,000, $9,000 more than everyone else is because the buyer is just rolling in all the upfront costs into the loan. If the offer isn’t substantially better than the more stable offers this buyer loses out, so they must overpay in order to get the house.

And that is how you really screw up a home purchase.

You decide to buy a house before you’re really ready to. Sure you can qualify for a loan, and have a little bit of cash for a down payment. But you’re not ready to take on homeownership, and in order to do it in this market you’re going to overpay. Or you’re going to have a ton of heartache and wasted time going from listing to listing and making offer after offer that sellers reject.

So what do you need to buy a house, even if a lender or real estate agent says something different?

• You need a good, healthy emergency account.
• You need a large down payment.
• You need to know you can afford the house.
• You need to be out of consumer debt.