Tag Archives: home loans

Buyers: How to Compete in Multiple Offer Situations

Do you fear looking for a home that you are going to get into a  bidding war? If so, this post may help you conquer that fear of competing with other buyers when you find the right home. Here are some tips to make your offer stand out from the rest:

Be the first one to get in the door. The buyers that wait to write an offer don’t look motivated.

The single biggest factor in determining who wins the property is who offers the highest price. If you work with me, we will discuss your feelings and motivation for buying the home, which can help guide you through how much you should offer. If you feel that this is the best home you’ve ever seen in your life, and you would be devastated that an offer came in higher than yours, you might want to consider offering as much as you feel is reasonable, even possibly going over the asking price.

If, however, you like it but you would not feel all that much is lost if the seller went with another offer, you might consider a lower offer.

Another big factor in multiple offer situations is having a good pre-approval letter to provide to the listing agent and seller. Note that there is a difference in pre-approval versus pre-qualification. In addition, the best offers come from buyers that are pre-approved with a mortgage broker versus a bank.

The seller will want to see a decent amount of earnest money offered. In our market, the typical amount of earnest money is 1% of the sales price rounded off to the nearest $500. If you are competing, you may consider offering more than this.

Find out what the seller is planning on doing when the home sells. Are they hoping to find another home? Are they moving into a home they already have picked out? Often, sellers will want to negotiate a period where they can stay in the home for a short while after the sale closes, so that they can find another home and have time to move into it. Having the sellers situation factored into your offer will help you substantially.

Some buyers like to add a personal note with their offers. This can be very helpful, because when sellers get offers from buyers they are very impersonal.  Introducing yourself can help sway the offer your way. When people introduce themselves, they might: tell the seller what they do for a living, talk about their family, say what they like about the home, etc. Sometimes they even attach a picture of the family. However, there can be drawbacks to these letters. If there is something that comes up on the inspection report that needs to be negotiated, the seller may remember the buyer raving about the property on their letter, and sometimes they won’t do any repairs or make any credits. It can occasionally weaken a buyer’s bargaining position. Your best bet is to keep your letter more neutral, unless you really are in love with the place and will accept problems as-is.

I have other tricks up my sleeve, and if you work with me I am happy to help guide you through the process!

 

Why working with a mortgage broker is different than going to your bank or credit union

When I first start working with my buyer clients, they often tell me that they are considering getting their loan through their bank or credit union. Most often, I will need to coach them into understanding the difference between the services offered by a mortgage broker and a bank.

First of all, a bank and/or credit union usually only has access to their funds, unlike a mortgage broker, who shops around to all private and public sources of loans, and generally offers you the best rate that they can find. Their fees for closing a loan (“closing costs”) tend to be significantly higher than mortgage brokers as well.

The other big difference in the two is that mortgage brokers typically have much better customer service. The few times that I have had clients use a bank over a mortgage broker, many problems come up. Appraisals don’t get ordered on time, the estimates that my clients received weren’t accurate, the loan officer pulled up too many credit reports (lowering my clients credit rating), and most often, the loan doesn’t close on time.

If you end up in a multiple offer situation and you have a pre-approval letter from your bank versus a mortgage broker, the listing agent is likely to make a note of this and it will be one of the considering factors when looking at all the offers.

When you shop around for different loans, ask for a Good Faith Estimate, and compare them side by side. You will want to make sure that everyone has a ball park amount of things like taxes and hazard insurance included, which will affect the amount of the monthly payment.

If you need a referral for an excellent loan officer, please check out my referrals page.

The Difference Between Pre-approved and Pre-qualified

In one of my posts I had discussed the importance of getting pre-approved for a home loan ASAP if you are considering purchasing a home. Now I want to explain the difference between the terms “pre-approved” versus “pre-qualified.” The difference in terms is meaningful to both buyers and those wishing to sell their home.

A “pre-qualification” simply means that the buyer has had a verbal discussion with a loan officer regarding how much money you make. “Pre-approved” means that the loan officer has actually received supporting documentation regarding your assets, and has taken loan application on the buyer’s behalf, pulled a credit report, etc., and is approved for a loan based on these factors.

When you are looking to purchase real estate, a buyer’s agent is going to be hesitant about representing you if you have not gotten fully pre-approved.

When you do find the right home to buy and want to write an offer on it, the Realtor representing the seller (Listing Agent) may advise the seller to not accept your offer until you’ve gotten fully pre-approved. A seller will not want to take their home off the market, only to have it go back on the market a week later for a buyer that does not qualify. This damages the seller, because many people assume that something went wrong with a home inspection. This means that another buyer can come along and buy the house before you’ve gotten fully approved for your home loan.

The distinction is particularly important in multiple offer situations. Even if you write an offer on a home that is well above another offer, the fact that the buyer is not fully pre-approved discredits the entire offer.

For recommendations of mortgage brokers that past clients have had good experiences with, check my resources page.

Why You Should Get Pre-approved for a Loan Right Away When You Want Buy a Home

Imagine this scenario: you decide you’d like to buy a piece of real estate. You find an agent you want to work with, and that agent hopefully informed you during the beginning of this process that you should get pre-approved (not just pre-qualified) for a home loan. In your head, you are thinking that this is a hassle and putting the cart before the horse and you’ll shop for a house once you find a home you would like to buy.  After months of looking, a home comes up that fits all your desires. You write an offer on it right away – and – surprise! The right home for you turns out to the right house for other buyers. You end up in a multiple offer situation. Your agent submits your offer right away, but then calls you several hours later to say that the seller went with another offer, because that other buyer was actually pre-approved for a home loan and you were not.

Do you think this scenario is unlikely? Unfortunately it isn’t. This situation is extremely common. If the home is perfect for you, it is likely perfect for many other buyers out there and you will likely face competition when the right one comes up.

When you do find the right piece of real estate and decide to write an offer, the seller will consider your offer much more serious if you have attached a copy of a pre-approval letter. This letter tells the seller that a loan officer has verified your ability to buy their home. Even without another buyer to compete with, a seller is going to be very hesitant to accept an offer from a buyer without this documentation.

Getting pre-approved for a home loan right away has other advantages. Sometimes things come up on your credit report which you weren’t aware of, which can dramatically impact your ability to buy, or even what interest rate you get. Knowing this information up-front gives you the possibility of fixing anything that might need your attention, or taking measures to improve your credit score (such as paying off or closing credit cards or restructuring student loans).

Of course, getting pre-approved right away will give you a more accurate idea of how much home you can afford. You might be amazed with the low interest rates that you can afford a more expensive home, or, conversely, you might be surprised that Private Mortgage Insurance premiums are higher than you had expected. You will not have an accurate picture of this information without speaking to a loan officer.

Shopping around early will also help you reveal the best interest rate with the least amount of fees. Just be sure, when you begin the process of looking at various terms of home loans, that the loan officer does not pull up your credit report *until* you are sure what loan you would like to go with. Each time your credit report is pulled, your credit rating can be lowered significantly, which could damage your affordability.

Also know that loan officers vary in their experience and reliability. I’ve had many disasters working with unfamiliar loan officers that could have been avoided. For instance, I’ve had loan officers who have said that the buyers are approved for a certain amount, only to find out once we’ve gotten into the process that the buyers are actually qualified for significantly less.

If you need a referral to a loan officer to get your pre-approval started, please contact me. I’ve got several recommendations of mortgage brokers that I have worked with reliably for many years. Happy house hunting!