The homebuying experience today doesn’t look like it did when your parents bought their home. Old rules of thumb and advice often don’t apply in the kind of high-demand seller’s market we have seen in the last few years, which is changing the rules of homebuying.
That doesn’t mean it’s a bad time to buy. Even with rising rates, mortgages are still very affordable by historical standards. Buyers simply need to get creative and take steps to increase their likelihood of finding the right home, be ready to move fast and make their offers as attractive as possible.
A Pre-Approval is a Prerequisite
In today’s market, sellers usually want a pre-approval (not just a pre- qualification) before they’ll even consider an offer. Lenders often pre-qualify a borrower, but this is based on self-reported information and will most likely not be accepted. A pre-approval letter requires your loan officer to check your credit score, review your financial documents, and ensure you have cash to close so they can certify that you are prepared to make an offer the seller can count on.
Work With an Experienced Real Estate Agent
Typically, the real estate agent representing the buyer is paid by the seller. This means that you get these services for free, so why not get the best match for your needs? Make sure to hire an experienced agent. Find one that works in the neighborhoods you are considering. Obtain a referral from a friend, family member or your loan officer. Then interview the agent. Ask about their time as an agent, their volume of business, experience in the neighborhoods you like, whether they know of upcoming listings, and how they intend to help your offer break through.
Shop Around for Loan Officers Who Know All the Angles
Take time to find a seasoned loan officer with strong product knowledge and the ability to work with you and your real estate agent to present the best offer possible. If you are in a competitive offer situation, talk to your loan officer about the possibility of using gift funds from a relative or mortgage insurance. These options may allow you to redirect some of your personal savings and increase your offer. If you’re using proceeds from a sale to buy, talk with your loan officer or financial advisor about how much cash you need for the new house, or if you’re better off investing some. These are nuanced situations where more experienced officers can offer valuable advice.
Get Creative with Contingencies & Appraisal Gap Coverage
Most homes continue to attract multiple offers, often over list price. Many buyers today elect to eliminate the inspection contingency from their offers. Talk to your agent about whether this makes sense, and if there are creative ways to minimize risk, like bringing an inspector to a showing. Another way to strengthen your offer is to offer appraisal gap coverage, in which a buyer offers to pay cash (up to a capped amount) if the appraisal comes in lower than the purchase price. Talk to your loan officer and real estate agent about inspection and appraisal gap options.
Expand Your Horizons
If you have the option to work remotely on a part-time of full-time basis, consider expanding your geographical home search. Your real estate agent can provide you detail on inventory in different neighborhoods. You might be surprised by the value you can get in a home by moving a little further beyond your initial target area.
Buying a home is one of the biggest decisions a person will make in life. As markets change and new practices become standard, many may need to adapt their plans. Having an experienced team on your side can make all the difference when navigating new approaches. Talk to an Alerus mortgage banker about how we can help you come out on top in the search for your dream home.
The information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Alerus does not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. Alerus Financial, N.A. is Member FDIC.