We are seeing a number of Pre-Approved buyers who placed offers losing out to competition. Here are the some of the tactics that buyers and agents were considering when placing an offer.
1) Conventional Loans are more appealing than FHA ► This is not the case. The house is either in good shape or it is not, and sellers are more concerned with the cash needed to close.
2) Large down payments must be an advantage ► This may be percived to be true, but a 20% down payment from a buyer only offering to put $100 up for the Earnest Money Deposit (EMD) smells funny to me.
3) Pre-Approval detailing they can qualify for more than the offer price ► This also is not advantageous considering it only takes about 5 minutes to get a pre-approval letter from a loan officer.
Offer price is the most important piece to the seller and listing agent. The buyer’s credibility and seriousness can be clearly stated by the EMD they put up with the offer.
For example, let us look at two offers on a home.
1) $180,000 offer with a conventional loan, 5% down payment and $1,000 EMD.
2) $180,000 offer with a FHA loan, 3.5% down payment and $6000 EMD.Offer 2 indicates a much more serious buyer with the higher EMD and cash needed to close will be less of a concern.
We’d love to hear your thoughts on this so PLEASE comment below!
Posts tagged DOWN PAYMENT
Larger EMD = Offer Accepted!
2011 Recap: Larger Down Payments
While everyone is trying to refinance their mortgage with HARP 2.0 and rates at historic lows, we actually had 40% of our closed loan transactions were purchases in 2011. This is almost the exact same mark we saw in 2010.
2011 was good and bad for the housing market. The bad side including purchase activity in the Midwest declined 15% from 2010; down 30% for us personally. This is due to there no longer being a Home Buyer Tax Credit in 2011. This was huge as 70% of our purchase deals in 2010 were before the tax credit expired in May. Also, the consumer confidence after the tax credit expired was substantially lower than what we are seeing now. Buyers are also saying there are fewer homes on the market right now than they’d like to see.
The good news is that our average loan size increased for 2011 as well as buyers made larger down payments. 40% of our buyers put at least 20% down on their purchases. With loan amounts increasing on FHA and Conventional loans, this tells us that appraisal concerns continue to be less of an issue as we move forward which is great news.
Our predictions for 2012 can be stated with this fact: We received more purchase lead inquiries in December of 2011 than we did for the whole 1st Quarter of 2011. It feels like the consumers have more confidence and there is definitely a buzz in the housing market going into 2012.
PA Fallout? We can help!
The chief economist for NAR has recently sighted that contract failure rates have hit a staggering 33%, up from 18% the prior month. NAR claims the main reason for this is due to declined mortgage applications and appraised values.
This is not making any sense to us as lending guidelines continue to open up making it easier for buyers to qualify for home loans.
- Down Payment requirement down to 20% for Jumbo Loans
- Down Payment requirement down to 3% for Conventional Loans
- Credit Score requirements lowered to 620
- Many conventional loans only require a Drive-By Appraisal
- Purchase Transactions have priority and are flying through Underwriting
This is great news heading into 2012 with expanding loan options. Purchase Agreements are falling apart for a number of different reasons. Call us if we can help your buyer understand what needs to be done to get their loan clear to close. Or call us if we can help you understand what the lender is telling your buyer.
Do you agree with NAR’s findings? Comment below, we would love to hear your thoughts!
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