If you're eyeing the spring real estate market and thinking of purchasing a home in a desirable neighborhood, you may be losing sleep over how to create the ideal offer strategy.
After all, we've all heard stories about multiple house bids rejected and multiple "dream homes" lost to buyers with deep pockets. How do you create the optimal strategy to deliver a house bid where you land your dream home without overextending yourself or finding yourself in a negative equity situation because you outbid the market?
Fashioning a great offer that wins in hot markets is part art, part science, and requires a proactive approach that allows you to move quickly when your ideal home is listed for sale. Begin your preparation now and you'll find yourself moving into that dream house sooner than you thought possible.
Where the Wild Markets Are
Real estate markets across the country have been in a perpetual state of low inventory for the past few years and the problem is only getting worse. In many hot neighborhoods, homes hit the market with multiple offers already in place before the first, and only, open house.
And the impact isn't just limited to quick sales and minimal days on market--higher prices are driven by increased demand and limited supply, setting the stage for housing bubbles in particularly high-demand areas.
Limited Inventory isn't just a problem in big cities like Denver, DC, and LA with traditionally tight markets. Places like Fort Wayne and Omaha are ranking alongside cities like Seattle and Portland for the hardest-to-crack metro areas.
Upcoming changes in the tax code may mean other real estate strongholds see less activity as well, as more homeowners decide to stay put rather than upgrade and pay more in property taxes. This could further impede the flow of homes in markets that are already squeezed.
How to Craft a Winning House Bid
So what can you do to ensure that your offer looks the most attractive to the seller? Financing is key to demonstrating your ability to go the distance--all the way to the closing table-and this can help you come out on top. Here, then, are the winning financial strategies to get you into your new home.
Without a doubt, the most successful house bidder in a tight market is the all-cash buyer. They are not constrained by the need for financing contingencies and are frequently able to offer faster closings than buyers who are financing.
This is why cash buyers are preferred by many homeowners even though their offer amount may be slightly lower. In many metro markets especially, cash-flush investors drive the real estate market because of the strength of rental markets in those areas. This can spell higher prices and more competition for buyers looking for in-town living but requiring financing.
Strong Pre-Approval Documentation = Competitive Advantage
In a competitive house bid, if you require financing, you will need the strongest possible pre-approval letter and financial package. Your offer will need to be backed with documentation that assures the homeowner you not only possess a strong financial profile, but also will be able to move forward to closing seamlessly without questions regarding financing.
Fortunately, all pre-approval letters are not created equal and there are some that truly stand apart from the others and significantly improve your chances of coming out on top.
Commitment to Lend
A fully verified commitment to lend, like Neat Capital's Platinum Pre-Approval, creates the opportunity for buyers to compete with all-cash offers. The only additional information needed is the property address for which the buyer chooses to make an offer.
This means a financing contingency is not necessary and loan approval can move forward without impacting the timeline of the sale. This requires a buyer to provide all of their income and asset documentation to a lender who has a quick turnaround timeline and an efficient decision-making process. There are currently only a few lenders in the nation who are doing this.
Pre-Approval Letters with Minimal Documentation
The industry standard for issuing a pre-approval involves pulling a credit report and reviewing a buyer's income and assets on a high level. Buyers then undergo the full mortgage underwriting process after choosing the home they are hoping to purchase.
Realtors generally include a financing contingency with the house bid because of the uncertainty surrounding the typical mortgage process. This can mean a nail-biter of a closing process, with every decision along the way affecting the loan approval and, possibly, delaying or derailing the closing.
Some lenders provide even less assurance, with a pre-qualification based entirely on the buyer's assertions about their financial picture and no real documentation reviewed until the offer has been accepted and the contract ratified.
Many sellers and realtors are rightfully leery of these types of letters and they therefore do next to nothing to improve your chances of winning in a multiple-offer scenario.
Jumbo Loan Pre-Approvals
In many markets, a large portion of loans are Jumbo Loans because of the high cost of living in those desirable areas. A jumbo loan often requires more complete and extensive documentation, more stringent qualification requirements, and may also require an additional property appraisal before final approval.
Working with a jumbo loan specialist is highly recommended in order to ensure the most favorable outcome on these specialized loans.
The better your pre-approval process, the stronger your house bid and the more likely you are to be able to move through the purchase process in a timely and seamless manner.
Speed is key when bidding in a competitive real estate market, so the most important component of a strong house bid is the assurance of sufficient funds and guaranteed approval. If sellers know you can go the distance and get closed in a reasonable timeframe -- by limiting or eliminating contingencies -- your odds for success go up exponentially.
We often think of a real estate purchase as beginning with the home but that is no longer the case. The time is now to begin crafting the best possible terms for your offer, so that when the right home comes along you'll have your financing in place and will be ready to go.
If you're in a high-value, competitive market, check out Neat Capital's unique Home Affordability Calculator to find out your potential price range.
Need a jumbo loan to go along with your house bid? We specialize in them. In fact, we'll back your earnest money up to $10,000 if we fail to get you to the closing table. Unlike traditional mortgage companies, we create a financing scenario that gets you closed in an average of fifteen days--allowing you to compete with cash buyers in your market.