Preparing the Most Competitive Offer You Can
If you are in the market to purchase a new home today, you know how competitive it is out there. With low inventory and the desire to purchase while rates are still low, it’s essential to prepare to make the strongest offer as soon as you find your dream home. Waiting for the purchase market to settle may not be the best strategy as the housing market appreciation is likely to continue while rising interest rates will increase your monthly mortgage payments and may make it harder to qualify for a mortgage loan.
So, how do you make the strongest offer in today’s market and compete in a possible multiple offer situation:
1. Make a “Cash Offer”. Taken literally, a true “cash offer” means that you have the funds available to pay the purchase price in full with your own money. You may be asked by the listing agent to show proof of available funds prior to acceptance of your offer. With a true cash offer, you would not have a finance contingency and the seller will know that you will be prepared to close without delay. Make sure to consult your attorney as you may still want the contract contingent upon receipt of an appraisal confirming that the purchase price is supported by comparable sales. In today’s market most cash offers do not include an added appraisal contingency.
2. Make an offer without a finance contingency. If you and your lender are confident that you will qualify for mortgage financing, you can consider removing the finance contingency from the contract even though you do plan to purchase the home with financing. Like a “cash offer”, the seller will be more inclined to accept a non-contingent offer over an offer where the buyer can back out of the contract if unable to procure financing within an agreed upon period of time. Again, make sure to consult your attorney as you may still want the contract contingent upon receipt of an appraisal confirming that the purchase price is supported by comparable sales and, in the case of a condominium, that the condominium project will be approved under traditional condominium finance guidelines. Be cautious in making an offer without a finance contingency as you risk losing your earnest money if your lender was wrong or issues come up when underwriting your file. The solution is to obtain a true pre-approval from your lender to confirm that you will be credit approved. Normally this does not occur until after you have an accepted contract and your file submitted to processing and underwriting for review. loanDepot will actually underwrite your loan even before you have found a property! This puts you in an advantageous position over other buyers in today’s competitive market.
3. Offer more than the list price of the home. With the limited supply of homes for sale, this is becoming more common on desirable properties. With properties continuing to appreciate and interest rates likely to rise, this is a strategy to seriously consider and doesn’t mean that you are overpaying for the property. You might be surprised at how quickly you will break even based on appreciation. See the example below: