According to a 2017 American Housing Survey, the typical homeowner is 35 or older and has lived in their current property for several years, most purchasing with a home loan. Younger buyers are fewer, possibly due to high student loan debt and stagnating wages. The Federal Reserve's 2016 Survey of Consumer Finances reports that 63.7 percent of families own their primary residence. In this age of property bidding wars and offers over list price in many cities, how can you be part of the 63.7 percent, whatever your age?
Competitive Bids Cooling Down
Overall, it helps that bidding wars are cooling down. However, some areas of the U.S. are still highly competitive for buyers. A December 2018 study by real estate tech brokerage Redfin, which has tracked bids in areas where the franchise does business, notes that competing bids were down 45 percent in November 2018, as opposed to a year earlier. However, certain coastal areas are still seeing bidding wars, especially Placenia, Calif., along with some areas in Oakland, Calif., Washington, D.C., San Francisco, and Boston.
Although multiple offers are decreasing across the nation, buyers in many areas may still face steep competition. So, exactly what does a homebuyer have to do to purchase in a fast-paced seller's market, aside from finding a competent real estate agent? Two experienced mortgage lenders explain considerations for buyers.
5 Tips To A Quick Home Loan
To gain an edge in this competitive real estate market, here are some lender tips to help ensure the seller chooses your contract over the myriad other purchase contracts received, leading to a fast and smooth closing process.
1. Pick the right loan officer
Not all officers are willing to go the extra mile to make sure you get to closing on time. Your officer should continually communicate with you and your real estate agent to quickly resolve any issues leading to a smooth and on-time closing. A well-respected officer working for a reputable organization instills confidence in the seller and seller's agent that the property will be financed.
It's okay to shop around for the officer that fits your mortgage needs. Loan Officer Chris Bettis of Fluent Mortgage in Eugene, Ore. and director of the National Association of Mortgage Brokers, suggests homebuyers choose their officer using these four questions:
- Do you like and trust her/him?
- Is she/he knowledgeable and experienced?
- What is her/his reputation within the real estate community?
- Does she/he communicate well and utilize the latest technology?
2. Have a pre-approval letter
Homebuyers can either be pre-qualified or pre-approved for a mortgage before searching for property. There is a big difference in these two approval types.
Senior Mortgage Consultant Scott Steinlauf of A and N Mortgage Services, Inc. in Chicago, describes pre-qualification as "as way to let clients know what type(s) of mortgage programs(s) they qualify for based on cursory information provided by client." Completing an application is a first step toward mortgage qualification and approval.
A pre-approval is weighted higher than pre-qualification. Income amount and type, credit report and monetary reserves from checking and savings accounts, retirement plans, investments and other reserve accounts are all reviewed to educate the buyer on lender program options and their details. The client's information is then put through an automated underwriting system. After discussing the details of the buyer-qualified lending program(s), the buyer chooses a program and the officer issues a pre-appproval letter for the contract property address and offer amount.
"I can't emphasize enough that having a pre-approval is a much stronger offer with more surety of a successful purchase and quicker to close," states Bettis. Steinlauf agrees, adding that a pre-approval is a pre-qualification "on steroids".
3. Avoid using multiple lenders
While it's fine to shop around to find the right lender with the best terms, each mortgage program has the same lending rules. Having multiple lenders vouch for your worth and ability to qualify for a mortgage is counterproductive. "This could indicate to the seller that the buyer is not that strong, as the buyer explored several lending avenues," explains Steinlauf. "One pre-approval letter in itself is a huge competitive advantage because very few people go through this process before submitting a purchase contract."
4. Understand your qualifying mortgage program
Once you are pre-approved for a specific mortgage program, educate yourself about its requirements by asking questions of your lending agent. For instance, various government-backed mortgage programs are stricter about the roof condition than other mortgage programs. Understanding your loan helps you, your real estate agent and/or attorney focus on writing a purchase contract that appeals to the seller, yet takes these loan stipulations into account.
5. Do not take 'no' for an answer
If your loan officer tells you that your loan is not going to fund after all, don't take 'no' for an answer. Be pro-active, learn the reason and find out what can be done to get final loan approval, such as securing additional documentation or offering the seller extra money to fix the roof before the loan is funded. Any 'no' to funding approval should come with lending agent "insight into why it's no longer going to work," advised Bettis. If that doesn't help, try another lending institution that may suggest a different mortgage program or find a more experienced lending agent with concrete solutions to lending setbacks.
Don't give up on getting that home loan. As Bettis acknowledges, "There is always hope and usually a solution."