home buying – OC Neighborhoods

How the Fed Rate Increase Impacts Us

The federal funds rate doesn’t directly adjust mortgage interest rates. However, the Fed rate does influence the amount of funds banks have available to lend coupled with how much banks are required to pay to borrow money. Therefore, a Federal Reserve rate increases, 99 times out of 100 it causes mortgage rates to rise for borrowers and affect their home affordability.

Although, there is some good news: If you decided to lock your rate before the increase, you’re in a good situation. Provided your closing date is well before the lock expiration date, you will be assured that rate on your closing documents. On the other hand if you don’t signed a purchase agreement or need to wait for your home to be built, you’ll have to confirm with your loan officer about your options to lock a rate lock such as 90, 120, or 180 day lock options.

It can certainly be a huge stress to think what will happen with rates during the process as you look for a home. It’s helpful to remember that interest rates aren’t the only element of the housing market that will influence your home buying experience.

As home demand changes prices will also vary up and down. So although the interest rate may be higher for your loan, some or all of it may be be balanced out by a lower contract sales price. The best advice is to stay in touch with your real estate agent and loan officer, so you may modify your home search and finances when necessary.

How the Fed Rate Hike Affects Sellers

We’re still in a seller’s market but reports by realtors is many major cities including those in California and experiencing price reductions. Buyers and Sellers are getting close to equilibrium.

Even though the typical expectation from a Fed rate increase would be less demand for luxury home purchases, some real estate professionals forecast the high demand for housing throughout the country will not abate. Early reports indicate those experts are incorrect as demand and loan application has dropped significantly in June 2022.

Another item you will want to seriously focus on is the pre-approval situation. Try to raise your credit scores if they are not already near their maximum for your next home. Ask your listing agent to make sure each potential buyer has been evaluated carefully and that any pre-approval letters they presented are recent. A pre-approval letter dated over 30-days ago may have problems today and that may affect your next home purchase.

Top 2 Ways to Get Your Purchase Offer Accepted

You’ve scoured the market, waded through thousands of ads, and visited dozens of properties. Finally, you discover the perfect house and want to make sure your offer is the one that ultimately gets accepted.

There’s no escaping the fact that making an offer on a property can be a stressful experience. With competition still fierce in the housing market, buyers are now having to go the extra mile with their purchase offers to edge out other prospective owners. Being pre-approved for a mortgage simply doesn’t cut it anymore and no one wants to pay over the odds when prices are already elevated.

To help, we’ve selected what we consider to be the top 2 ways to get your purchase offer accepted, as well as a bonus tip that is proven to give you an edge. With the following tips, you can take a lot of the guesswork out of the equation and feel confident you’re making the best offer possible.

1. Sellers prefer all-cash offers

It’s not exactly breaking news that sellers prefer cash. All-cash offers provide a level of certainty that financing doesn’t with less red tape and fewer setbacks from lenders. Real estate has coached sellers to see all-cash buyers as preferred customers, offering a much more streamlined selling experience.

Of course, this means having cash on hand. Traditionally, this has meant investors, home buying companies, and those with considerable wealth were at a distinct advantage. Their deep pockets mean they don’t need to wait for the sale of another property to complete before making an offer.

With data showing that all-cash offers quadruples your chances of snapping up your dream home, to give yourself the very best chance you may want to consider offering an all-cash offer yourself.

While you may not have the cash ready and waiting right now, several companies now allow you to make cash offers before your own property sells.

Once pre-approved by these companies, you can make all-cash offers on properties, this gives you the edge over regular buyers and allows you to compete with bigger interested parties.

There are 2 different types of cash offer companies now on the market. The most common is bridge-loan companies that will provide the funds to make cash offers before your mortgage closes. The other is cash-backed offer companies that promise to fund a purchase with cash should your mortgage not be cleared by the closing date.

Both types of cash offer company typically take a fee between 1% to 3% of the offer amount with the rate varying based on whether you use the company for your mortgage or you’re using a different lender.

The pre-approval process is fairly standard with lenders looking at your credit and financial background history through bank statements, paychecks, and tax returns. The process differs slightly between states with the biggest cash offer companies being:

You’ll also want to make an earnest money deposit, which is another point where cash can give you a leg up against the competition. While many buyers choose to offer sellers a modest earnest money deposit of just 1% to 2%, putting your money where your mouth is and offering a more sizable deposit show a commitment to buy that is hard to ignore.

While this money is potentially at risk should things fall through at the last minute, if you’re sure you’ve found the right property, this can demonstrate a readiness that sellers will understand.

2. Understand your seller and write a letter

Understanding why the seller is moving can also help you get your offer accepted by accommodating to their situation. Alongside an all-cash offer, crafting your offer to suit them will show you’re flexible and easier to deal with.

For example, some sellers may be frustrated by deals collapsing at the last hurdle due to financing issues. They may therefore be keen to only deal with potential buyers that are serious about purchasing and not simply testing the waters with low offers and negotiation. Such motivated sellers will appreciate firm, listing price (or higher) offers in cash that shows you are serious about purchasing the property.

On the other hand, if your real estate agent explains the seller is keen to organize a sale but will not be ready to move until a later time, catering for this will give your offer an advantage too.

Most buyers are eager to move in as sellers are to move out and the idea of waiting months for children to finish a school term or other life events to play out first can be off-putting causing them to look elsewhere. Your offer will have an enormous edge if you demonstrate patience with sellers that are not ready to move.

You should also accompany your offer with a letter.

This does not need to be too long, a single side of paper will suffice but it should include a little about you; why you want to buy their property; and what your plans are for the home. If possible, demonstrate an understanding of their situation, whether it be a desire for a quick sale, frustration over the selling process, or willingness to commit early.

Bonus: Waive financing contingency

You can also lever an all-cash offer to your advantage by waiving any financing contingency clauses. Such contingencies allow buyers to back out of sales if financing falls through in the event of lenders deciding to alter the loan amount or if interest rates change affecting your prospects.

Offers that choose to waive financing contingency are typically 66% more likely to be accepted than those that don’t. Sellers consider customers who waive this contingency to be committed and it puts your offer in good stead if you can forfeit it. Other contingencies tend to be less effective at getting offers accepted.

There is risk involved if financing collapses with your earnest money deposit at risk if things fall apart. If using an all-cash offer, however, you can safely waive this contingency.

Takeaway

Armed with these tips you should feel a lot more confident in submitting offers on prospective homes. The double-whammy of an all-cash offer and understanding the seller’s motivation, as well as waiving financing contingency will give your offer the very best chance of getting accepted.

Inflation: The Affect It May Have on Home Buyers

In February 2022, inflation accelerated to a shocking 7.9 percent, the highest it has ever been since the Presidency of Ronald Reagan. Many disagree with the 7.9 rate of inflation and believe it is easily in the double digits. If the price of consumer products stays on its path of rising, interest rates for home loans will inevitably escalate as well.

The rarity back in January were the low mortgage rates and soaring inflation. Since November 2021, the inflation rate was 6.9 percent so it has only gotten worse. As a result mortgage rates have skyrocketed to all the way up to 5% from numerous reports.

Moreover, the Federal Reserve is reducing its holdings of mortgage-backed bonds which is also influencing interest rates upward. Given this, homeowners and buyers have to plan accordingly for a higher payment. Some borrowers are considering short-term fixed ARMs to obtain a low affordable payment.

The Dangers of Inflation

Looking back it was obviously a mistake on the part of the Federal Reserve to label the inflation as “transitory” and not act sooner to end the rapid increases. The country and the world overall were in a stage of deflation from March 2020 through the end of the year.

The federal government wanted to give people’s bank accounts some stimulus money since many were forced to not work. However, this misstep actually encouraged price increases and irresponsible consumer spending as soon as typical lifestyle spending returned.

Year over year inflation statistics do a comparison of prices from the prior year. All this tells you is that consumers are spending much more than a year ago for the same items or services. The transitory argument claims things will return to normal the moment people have spent all they can.

Sad to say, that is not the case or what is taking place. Due to the fact that there are still substantial shortages for appliances, building materials, automobiles, and even common grocery items the Fed quit describing inflation as temporary.

The benefit used to be lower interest rates and inflation but that has changed for the worse too. Real estate studies are showing the mortgage payment today is now 20 percent more than one year ago

Interest Rates

The Federal Reserve has already said it will raise interest rates in 2022 likely 4 to 7 times. Their first raise was at the March 16th meeting with a 25 basis points hike. They have also signaled in upcoming meetings they may have to raise by 50 basis points.

Decisions About Your Home
Some of the hottest real estate markets include California, Arizona, Texas, Florida, and a few other states. With its thriving economy and optimal temperature, Arizona is a location you may want to give some thought to when choosing where your home should be. It can be a very nice place to call home assuming that you secure the right mortgage before buying a home.

Your Mortgage Leader in Arizona and Beyond!
Hopefully, with the information above, you will be able to figure out what price range, monthly payment, and down payment will be comfortable for your financial situation.

Keep in mind that you need to make wise decisions when it comes to buying a property. When you have professionals at your side who strive to make your loan application process smoother, securing a mortgage will be a breeze.

Why Buyers Are Paying Over Asking Price on Homes

Throughout history, home prices have been negotiable. This usually means buyers can push sellers below their listing or asking price. However, buyers are dealing with a record-low number of homes available in today’s market, and the opposite is now true.

And for many buyers, paying over the asking price for a home goes against everything they know, as many of them have the sense that you’re always allowed the opportunity to negotiate real estate transactions.

Still, many find that they have no other choice but to pay over the list price. But, why is this? Let’s discuss the reasons why buyers are paying over asking price on homes for sale.

Reasons Why Buyers Are Paying Over Asking Price On Homes For Sale

There are various reasons why buyers will offer over the asking price, but there is only one of these leading today’s market – low supply. Anytime you have what’s called a “hot” or seller’s market, there’s low housing supply but high demand.

As a result, prices for homes begin to rise as competition stiffens. In this environment, you may find yourself in the middle of a bidding war and willing to offer a higher price to secure the home.

Aside from what’s currently going on with the historically-low supply of houses for sale, here are some other reasons buyers will pay over the asking price on a home for sale:

You love the property and don’t want to miss out on it.
You already know the listing is getting a lot of offers, and there’s a bidding war.
Other potential buyers have offered all cash.
The home is undervalued (you can use comparable sales to gauge this)

Another situation where it’s common for people to offer over the asking price is when dealing with an unmotivated seller. For instance, maybe the person just wanted to test the market, or it’s their second or third home, either way, extra cash can sometimes be the motivator needed to obtain a particular home.

However, just remember that the most crucial factor to consider is your finances. Regardless of how much you want a house, don’t offer more than the asking price if you cannot afford it or if you weren’t approved for a loan of that magnitude.

Don’t Be Careless With Overbidding

As we said, before you get into a bidding war over a home, be sure that you have the means to follow through with your offer. In other words, if you’re using financing to finalize the deal, then a highball offer may actually cause you some trouble.

Banks require an appraisal before you can get a mortgage and determine the loan size you’ll need. Generally, an appraiser’s value for a home is primarily based on comparable sales.

If no previous sales support the price you offered, the house will not appraise, and the bank will not provide you with the total amount for the property. Instead, they’ll give you the amount of the appraisal.

Don’t fret, though, as you do have several options:

Appeal the appraisal and obtain another one
Ask the seller to accept the home’s appraisal value
Pay the difference between your offer and the appraisal out of your pocket
Negotiate with the seller and see if they’ll lower the price and cover the rest out of pocket.
Back out of the deal entirely

The good news is that so long as you included an appraisal contingency in the contract, you can back out of it unscathed. Though, it’s worth mentioning that if you back out without the contingency, you’ll forfeit your good faith deposit.

Given today’s volatile housing market, you may find that the more desperate you are to buy a home, the more you’ll end up overpaying. So, go into the process with an open mind that’s armed with information and try your best not to make decisions based on emotion, and you’ll be fine! In the end, there’s nothing wrong with overbidding on a home as long as you have the finances to back it up.

Can’t Find a Home to Buy? New Construction May Be an Option

If you live in an area where real estate is still super competitive, you may wonder if you’ll even buy a home. Millennials find themselves in this situation often because they can’t compete with older and more experienced buyers.

While it’s true it’s still a seller’s market as inventory remains low, there is an alternative – new construction.

It’s a Seller’s Market and it’s Competitive

The existing real estate market doesn’t have nearly enough homes for sale as the industry needs. It can’t keep up with the demand which leaves thousands of buyers without a home to buy.

Those who can afford the inflated prices, paying the difference between the appraised value and sales price, or who have large down payments are a step ahead of the game. But where does that leave everyone else?

It’s time to think about new construction.

New Construction isn’t Competitive

New construction is ramping up as material prices come down and more labor becomes available. This means the inventory of new construction in hot areas will be much more accessible than existing real estate.

New construction often has the stigma that it’s hard to afford or impossible to get, but neither is true. In today’s real estate industry, new construction is a smart way to go.

The Benefits of Buying New Construction

If you’ve never considered buying new construction, here are some great reasons to consider it:

Everything is brand new

You don’t have to worry about home inspections or finding out after the fact that you bought a money pit that needs excessive repairs. While no home is perfect, you probably won’t have to put much money into the home.

It’s built how you want it

Even if you buy a ‘cookie-cutter home’ you still get a say in what features, upgrades, colors, and designs you want in the home. This means the home meets your expectations before you call it yours.

There’s no competition

You can’t get outbid when buying a new construction home. Even if there are hundreds of others looking at the homes, if it’s a big subdivision the builder created, there’s room for everyone. You may have to be one of the first to put a deposit down if there’s a highly sought after lot, but you don’t have to worry about paying inflated prices for a home because of a bidding war.

You may save money with energy-efficient features

Older homes are usually the opposite of energy efficient. Building a new home often means you’ll have the latest technology which will save the environment and keep your bills lower from day one.

Final Thoughts

If you can’t find a home today because of the inflated prices and crazy bidding wars, consider new construction. There’s much less stress involved in the process, and you get what you want from the start!

You can work closely with the builder to build a home that’s within your budget and has the features you want without the hassle of trying to outbid anyone else.