How to beat the crowd in a seller's market
By JEFF LAZERSON / CONTRIBUTING COLUMNIST
In my experience over the last year or so, more than half of the very well qualified, pre-approved, $1 million or less price ranged homebuyers eventually get so discouraged that they throw in the towel and stop shopping.
Tired looking, over-priced properties with so few choices is reason one for the fallout.
There are 4,447 current listings in all of Orange County, with the average list price at $1.6 million. One year ago the O.C. had 4,973 listings and five years ago it had 7,597, according to Steven Thomas of ReportsOnHousing.com.
Successful home finders tend to focus on the finish line and letting the world know they are in play, have a very aggressive hunter (realty agent) who understands the home particulars, and have a lot of intestinal fortitude.
So far, it’s been two years for retired police commander Jerry Heath. He has been looking and is still looking for a single-level home in the $600,000 price range. He’s made five offers, two of which went into escrow and fell out.
“You know what you want,” said Heath. “I’m waiting for it.”
With home prices and now mortgage rates climbing, one way to keep your payment affordable and be able to manage an offer on a higher priced property is a 7/1 adjustable-rate mortgage, which has a rate that’s fixed for seven years and adjusts annually thereafter.
The rate can be as much as 1 percent lower than a fixed rate.
For example, on a $600,000 loan amount, the principal and interest payment at 3.5 percent is $2,694, compared to $2,908 on a fixed rate at 4.125 percent. That’s a $214 lower payment, almost an $18,000 savings over seven years.
When it comes to the offer, be sure you have a current pre-approval letter that includes being fully underwritten (subject to the appraisal and title report). That will make the seller feel much more confident, especially since most of your competing offers lack the underwriter’s signature.
The documents (credit report, bank statements, etc.) must be current within 120 days of the note date (funding date) on conventional and Federal Housing Administration loans. Jumbos need to be current within about 90 days.
So, if you have been looking for longer, you may need to have your pre-approval updated.
Do not open new accounts until the close of escrow. Lenders monitor your credit from application to funding. You do not want your credit scores to drop. And, you do not want your qualifying income and debt ratios to worsen as a result of taking on more credit. I’ve seen approvals turn into denials for this reason.
Katie Lynch, a single mother, was looking at a Lake Forest condo. That unit wasn’t right. As she was walking through the complex, Katie happened to run into the owner of another unit that was being fixed up to sell.
“Hey, do you know somebody that wants to buy this place,” the owner asked Katie.
The rest is history as Katie is about to close escrow on that condo.
Focus on the finish line.
Jeff Lazerson - Mortgage Columnist since 2011