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There’s no two ways about it: It’s a tough real estate market for buyers.
Low mortgage rates combined with fewer homes for sale has created a feeding frenzy. Bidding wars are driving up home prices. But the problem for many isn’t affordability — it’s tough to simply get an offer on a house accepted.
This problem is compounded for homebuyers who are taking advantage of down payment assistance programs or government-backed mortgages, according to interviews with a range of industry experts. Though they are essential tools for many first-time homebuyers, a perception exists among seller’s agents that government-backed loans, such as FHA or VA loans, will make the selling process longer or more difficult, these experts say.
“But that’s just not the case,” says Shanequa Jones, a realtor with Houston-based NB Elite Realty. “Realtors are poisoning their seller’s minds against these zero-down loans or zero-down programs,” Jones says. “I think that’s just being uneducated on the Realtor’s side.”
Work with a real estate agent and loan officer who are familiar with the first-time homebuyer programs you’re taking advantage of, so you can avoid common pitfalls.
Government-secured loans often have lower minimum credit score and debt-to-income ratio standards, on top of requiring little or no down payment. Whether homebuyer assistance programs and government loans live up to their negative reputation is a matter of debate and can be highly situational. But the bottom line is this: that’s the perception among many in the industry.
So if you’re having trouble getting your offers accepted, you’re not alone. “I tell buyers from the beginning, this might not be as easy of a process as your parents or uncle had […] because of the market that we’re in,” says David Dye, broker and owner of the Los Angeles-based Goldview Realty. So you should approach buying a home right now with an understanding that it’s not likely to be an easy process.
While the likelihood of experiencing rejection is high, you want to ensure you’re doing everything you can to improve your chances. And even though every situation is different, there are a few things you can control that may give your offer a boost.
5 Ways to Help Your Offer Get Accepted
When it comes to making your offer more appealing, some of the usual tricks aren’t available to those using government-insured loans. For example, sometimes buyers will waive contingencies that allow them to walk away from the sale under certain circumstances. An appraisal contingency protects the buyer if the appraised value of the property ends up being less than the sale price. But, you can’t waive the appraisal contingency on an FHA loan or a VA loan. And even in circumstances where you can waive the appraisal contingency, it’s a risky move.
“I never advise the buyer to waive appraisal contingencies or inspection contingencies […] it can be really harmful for them,” Jones says. If you waive an appraisal contingency, and the home value is lower than expected, you could be on the hook for the difference.
But there are steps you can take to strengthen your offer without putting yourself at risk.
Prepare in advance
Going through the full mortgage preapproval process with a lender before looking at houses should be your first step. During this time, the lender will verify your income, assets, and credit score. This allows potential issues with qualifying for a mortgage to be identified and addressed ahead of time.
When using a homebuyer assistance program, you’ll want to coordinate that process with your lender and real estate agent. “The down payment assistance application should be starting at the same time as the mortgage application,” says Sean Moss, senior vice president and director of operations and customer support at Down Payment Resource, an online aggregator of homebuyer-assistance programs. Being able to obtain down-payment assistance may help you qualify for a home loan, so it’s a good idea to involve your loan officer in that process from the start.
Many housing-assistance programs have extra steps the buyer must go through to qualify, and getting ahead of them can remove potential delays. For example, “a lot of these down payment assistance programs require that the buyer complete a homebuyer education course,” says Moss. “If that’s not done, that can cause delays.”
Work with people who know these programs
It’s essential to work with a lender or real estate agent who’s familiar with the program you’re using. If you qualify for a VA loan but your lender rarely works with veteran homebuyers, you’re doing yourself a disservice. “For the consumer, it’s important that they interview several realtors and loan officers and explore all of their options,” Moss says.
Every real-estate transaction is local and personal. “The agent and the loan officer in these transactions have a responsibility to educate the buyer and each other, but also the seller,” Moss says. “They need to provide confidence and comfort to the seller that they have a qualified buyer.” So work with an expert who’s familiar with the local market and understands how to sell the strengths of a buyer who’s using a government-secured loan or down payment assistance.
You should have your loan officer or agent talk to the sellers to answer any questions about the offer. “I like to lay everything out for the seller. I’ll show them the [buyer’s] credit score and that I’ve got two lenders lined up […] I’ll show them proof of funds,” Dye says. When you work with someone who is familiar with the loan type or home buying assistance program you’re using, they will be able to more easily address the seller’s concerns.
Write a letter to the seller
At the end of the day, there’s another human being who’s selling that house and adding a little human touch could help. “I have the buyers write a letter and will include that with the offer,” Dye says. A letter gives you an opportunity to tell your story about why you’re looking for a home, and hopefully make a personal connection.
This strategy won’t always work because some seller’s agents won’t give the letter to the buyer because they don’t want to risk a fair-housing violation. “You might be pouring your heart out about how much you love that house and it just goes to the recycle bin,” Jones says. So in your letter, as much as possible, avoid discussions on religion, ethnicity or other topics that a seller’s agent could see as a potential liability.
Increase your earnest money deposit
As part of making an offer on a house, you’ll include what is known as a good faith deposit, or earnest money. “A deposit shows that you’ve got skin in the game, it shows that you’re not going to go out and make offers on 10 different properties,” Dye says.
Earnest money is held in an escrow account and can be included as part of the down payment at closing. If you as the buyer walk away from the deal and break the sales contract, that money may be forfeited to the seller. But contingencies are typically included that allow the buyer to cancel their offer and keep their earnest money deposit if, for example, their financing falls through or the home’s appraised value ends up being less than the sale price.
Even though the earnest money is unlikely to be pocketed by the seller, increasing your deposit will make you seem like a more serious buyer. “We just got an offer accepted that was originally a $5,000 deposit and the buyer increased it to $10,000 and the offer was accepted,” Dye says.
Find properties that aren’t selling quickly
Right now, homes aren’t sitting on for sale very long, and that makes it harder for buyers. “This market is tough, but I tell buyers that you have a higher chance of getting your offer accepted the longer the house has been on the market,” Jones says. If you can find a home that’s been on the market for a few weeks, then there may be fewer other offers to compete with.
It might not be easy to find homes that aren’t selling in today’s market. So you may need to expand your search to areas you weren’t initially considering. It could be overpriced or require expensive repairs, which should factor into your offer. You should also be aware that if a home isn’t selling, there may be underlying issues. So make sure that you have the home inspected if you suspect that’s a possibility.
Getting a purchase offer for a home is difficult right now — and this is especially true for first-time home buyers. The government-backed loans and down payment assistance programs that are designed to increase ownership are also viewed as potential complications to the closing process. So offers that involve those types of programs are harder to get accepted.
As a first-time homebuyer, you may need extra patience in getting your offer accepted. But if you take the time to prepare ahead of time and work with professionals who understand your situation, you can increase your chances of success.