Mortgage Financing in a Hyper Competitive Market (Part 1, preparing to make an offer)

Anyone who has been thinking about purchasing a home within the past year has heard over and over how competitive the marketplace is. The severe lack of residential inventory has affected all price points and all types of properties. Rising interest rates may cause some purchasers to exit the process, but the need for housing will have a greater impact on the continued supply/demand equation.

Price and net proceeds are obviously important factors in the seller’s decision-making process, but several other factors related to financing can make the difference between a prospective purchaser being successful or having to find another home and write another contract. As a purchaser there are several things you can do related to financing which can make you more attractive to sellers.

First, you must be preliminarily approved for your financing. Your offer will not be considered without that preliminary approval. Additionally, you should choose a local lender. Seasoned listing agents have all had transactions which settled late or did not happen at all because a big-box lender or Skippy’s mortgage.com failed. They may get the job done 90% of the time, but that means they do not 10% of the time. Local lenders and their reputations are often known to the listing agent and local lenders will use locally-based appraisers. Local appraisers tend to know the nuances of neighborhoods and are more likely to generate quality appraisals. With multiple offers on the table, listing agents are likely to recommend to the seller that they ratify the contract which proposes financing through a local lender.

Next, talk with your lender about whether you can waive your financing and appraisal contingencies. It is not wise for some purchasers to waive the financing contingency, but other purchasers are virtually assured of loan approval, as long as they don’t walk in and tell their bosses to pound sand. Have a frank conversation with your lender about the risk (or lack thereof) of waiving the financing contingency. Many contracts are ratified with no financing contingency. Regarding waiving the appraisal contingency, it comes down to the purchaser’s ability to finance at a higher loan-to-value or their willingness and ability to come up with additional down payment funds if the property does not appraise at the contract sales price. Again, a conversation with the lender is critical, and again most contracts in our market are currently being ratified without appraisal contingencies.

Get your lender all the supporting documentation they will need to make the final underwriting decision before you start looking for property. You will likely need to update some of the documents, but you want to be ready to settle very quickly after contract ratification. You want a preliminary approval with loan specifics which line up with your offer. A vague “pre-qualification” does not put you in the best position. Not all sellers will want to settle quickly, but you don’t know which one’s will want to settle quickly, and you don’t want to lose to another prospective purchaser who proposes to do so. Generally, sellers want their funds as soon as possible and the best lenders can settle in three weeks or less from the time of ratification. Proposing a quick settlement may make yours the winning offer.

In the next installment we will address ways to purchase the next home before selling the current home.

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Brian Bonnet | Senior Loan Officer
Atlantic Coast Mortgage, LLC
e: bbonnet@acmllc.com | t: 703-766-6702

A lifelong resident of Northern Virginia, Brian brings twenty-five years of lending experience to the group. After graduating from The Citadel and serving as a Naval Officer, Brian transitioned to the United States Senate Veteran’s Affairs Committee where he served as a Professional Staff Member and had the responsibility of overseeing the VA Loan Guaranty program. After leaving Capitol Hill and the political world, Brian entered the mortgage banking industry. Keeping abreast of the myriad changes in the lending industry over the years has given Brian a unique perspective and the ability to successfully serve his clients regardless of the current market conditions. With his extensive knowledge about the VA and its loan guaranty program, Brian is widely recognized as a specialist in VA financing. He enjoys sharing his knowledge and experience with others and is certified to teach Financing Continuing Education in Virginia, DC, and Maryland.

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