It’s a cycle most realtors know well. As winter loosens its frigid grip, the real estate market sees something of an awakening, with more and more buyers on the hunt for homes as the weather warms. And these buyers should be prepared to face tough competition. Let’s look at how we can get them ready for the springtime frenzy.
Pre-Approval Offers a Competitive Edge
What level of competition will we see among home buyers this spring? Substantial. Nationally, the housing inventory has fallen to levels we haven’t seen in over twenty years, with the supply of homes that are on the market on a steady decline. We can look at historically low interest rates as a big reason; buyers have been hot to get in on great mortgage deals and homes have been selling in record times, often mere days after getting listed. But the home-supply forecast isn’t as dire as some may fear; conventional wisdom among economists is that 2022 will come to an end with more inventory than we had when the year began.
Some of this inventory dearth is attributed to the natural patterns of the real estate market. As most realtors know, things are often slow during wintertime, with fewer sellers listing fewer homes, and things usually begin to pick up at the end of February. While the demand for homes will still exceed supply in the foreseeable future, we should see a bump in listings this spring, albeit in a seller’s market in which homes get snapped up fast. However it works out, the buyer with a mortgage pre-approval letter in hand has a clear advantage.
Why begin with pre-approval?
Lots of folks, especially first-timers, take a “testing the waters” approach to buying a house; they simply look around to see what homes are available, figuring they’ll take care of the financial details when they know what home they want. It’s an approach that almost guarantees that some other buyer will snap up that home. Especially in today’s fast-moving market. These buyers likely need guidance on the main benefits of a pre-approved mortgage.
- Pre-approval sets a budget. While a pre-approval letter doesn’t guarantee the eventual loan amount, it is a close approximation of how much someone can borrow if one’s financial situation and interest rates don’t change in the near future. That loan amount, plus what a buyer may have for a down payment, sets the highest price that a buyer can pay for a home.
- Pre-approval flags potential issues. In the mortgage pre-approval process, lenders look at basic financial information and almost always pull credit reports. If there are credit problems, they’ll show up here. Giving the potential borrower time to resolve these issues before they set their eyes on their dream home.
- Pre-approval helps with mortgage choices. Should one get a conventional mortgage loan? Would a VA Loan, or an FHA Loan be better? While borrowers don’t need to choose their mortgage type during the pre-approval process, pre-approval does offer insight into which mortgage is best for which homebuyer.
Won’t interest rates rise this spring?
Almost certainly. Anyone who has been paying attention to the public signaling from the Federal Reserve knows that interest rates are expected to rise this year, and springtime is when we’ll likely see the change. It was bound to happen sometime; the unprecedented low interest rates of the recent past were never seen as permanent.
This impending rise has prompted speculation that homebuyers are less likely to seek out mortgages at these higher rates. So how high will rates go and will this increase serve as a hindrance for homebuyers? The consensus among experts is that we’ll see rates go up between half and one percentage point throughout 2022. Which still makes mortgages attractive for the majority of homebuyers.
Don’t Make the Mistakes of 2021
Almost anyone who was looking to buy a home last spring had to deal with serious competition. Record-low interest rates and low inventory were the kindling that ignited bidding wars. And about two-thirds of Americans who intended to purchase homes in 2021 were ultimately unsuccessful buyers. We can chalk some of that up to a pandemic, but others failed through some common missteps.
Competitive offers are key. While the highest bid does stand the best chance of landing the sale, the right competitive offer often needs more. Mortgage pre-approval shows a seller that the buyer can pay the asking price. Armed with a pre-approval letter, a buyer can more easily suggest an expeditious closing, letting the seller set the accelerated timeline. Offering to purchase a house as-is (after an inspection) also ups the competitiveness of an offer.
A significant number of unsuccessful homebuyers in 2021 lay the blame on their inability to not qualify for mortgages. But was this true in every case? Chances are many of these would-be homeowners wrongly assumed that lenders would deny them loans based on financial situations. While credit histories can’t be improved overnight, focusing on some fundamentals will improve the chances of getting approved for a mortgage. Paying bills on time, working to lower debt, and saving for a down payment makes loan approvals more feasible for many.
Just as snow melts, greenery blooms, and wildlife awaken from long slumbers, spring welcomes a seasonal rise in home sales. And City Lending will be right there to help ensure these springtime purchases go smoothly.