Getting a Deal On Home Prices in This Competitive Market – An Expert Weighs In
U.S. home price growth just reached a 15-year high, according to S&P CoreLogic Case-Shiller national home price index. There have been few times in history has the housing market been this hot — or interest rates so low.
The continual, and unprecedented, easy money policy of the past decade is arguably on its last leg. Inflationary pressures, bottled-up savings (not to mention consumers) and commodity price strains all point to an inevitable tightening of monetary policy in the near future.
If you’re looking to buy a home, now is certainly the time. Mortgage rates fell below 3% for a third consecutive week as of April 22. With low supply, high home prices and low interest rates making this one of the most competitive housing markets in decades, how can you win?
Peter Papazoglou, a licensed mortgage loan originator for RCG Mortgage, spoke exclusively to GBR to weigh in on the best things to do to position yourself for the close.
With a market this hot, Papazoglou stressed one of the most important tools to have in your arsenal is a pre-approval before you make the decision to buy. He noted:
“There are several buyers that believe their mortgage will be the easy part of the process and that they’ll have their pick of litter on which lender to go with. But with mortgage guidelines tightened and so many buyers out there, you need to fully understand your flexibility, and without a preapproval you’re operating on assumptions, not facts. I would also say the team you surround yourself with (loan officer, real estate agent, real estate attorney) is vital. With many houses in multiple-offer situations, you need professionals on all sides to be able to work efficiently and in your best interest as one missed call could be the difference between an accepted offer or another night spent browsing on Zillow.”
To score the best deal, and put yourself in line for an accepted offer, the kind of pre-approval you receive is also key. Papazoglou highlighted that getting pre-approved for a higher amount than you intend to borrow will give you room to coordinate the best offer.
He added, “Understanding your flexibility is key. Having the conversation about what the payment and cash out of pocket would look like on a loan, maybe $40-$50,000 higher than the range you’re looking in doesn’t mean you have to purchase at that price point. But if you do find the perfect home and do not want to let it get away, having that extra knowledge could be the difference that gives you the confidence to make a slightly more aggressive offer that nets you your forever home. And with rates so low, several homebuyers are stunned at the minimal difference a $10-$20,000 increase in an offer truly makes on a monthly mortgage payment. Also working with a mortgage broker that has the flexibility to entertain different loan programs.”
Papazoglou referenced the utilization of a company that specializes in originating loans vs. your traditional bank. He explains the differences between your traditional retail bank and a mortgage broker company.
“As a loan officer, we enjoy much more flexibility than your local mortgage lender or FDIC insured bank since we work with major wholesale lenders that lend strictly based on government guidelines. With several mortgage lenders you’ll find added restrictions, as they have to satisfy their investors’ lack of appetite for risk. With most big banks and credit unions, they simply do not specialize in mortgage lending and offer mortgages to keep all your financial products (savings accounts, car loans, investments, credit cards, etc) under the same roof. These unnecessary hurdles make it much tougher to qualify for a mortgage, especially when Fannie Mae/Freddie Mac/HUD do not place the same restrictions on the lender in order to insure those same mortgages.”
It is important to point out that Papazoglou was speaking about the added lending restrictions placed on large financial institutions as part of Dodd Frank after the Great Recession. Before the 2008 crash, applying for and obtaining a mortgage was a significantly different — and easier — process. Credit rating requirements were lower, income requirements and post-purchase liquidity were all far looser than what is necessary today. Bigger banks, he noted, have varied lines of business. A Chase or Citibank, for example, will lend for mortgages but are also investment banks, retail banks and give out dozens of different lines of credit. These larger institutions are also required by Dodd Frank to hold certain levels of cash on hand, which can tighten the amount they lend.
A mortgage broker company specializes only in mortgages, and while they follow government guidelines, they are not beholden to the same restrictions as a retail bank as they do not operate in the same lines of business.
For the right buyer, mortgage broker companies instead of traditional banks can make sense. This means a buyer who can truly afford to buy a home. A home is still an investment like any other – there is suitability, and there is not. Buyers should still beware the incessant buzz around the housing market. In other words, if your financial situation is conducive to purchasing a home, then the goal is to win over other buyers, for which a mortgage broker company can be ideal. If it is not though, these special market conditions do not create any difference in suitability.
That being said, in this specific type of market, having a mortgage broker company and a mortgage loan officer help you secure a pre-approval and mortgage can be the extra resource to edge out the already relentless competition.
Papazoglou summed it up: “Imagine taking a half court shot to give yourself a chance to win $1 million dollars (or maybe more appropriately a house!) Would you rather have one basketball and one shot? Or a whole rack of basketballs giving you 20 opportunities to make that shot? By going directly to a bank, you’re doing exactly that, limiting your options and therefore limiting your opportunities.”
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