By J. Mansisidor
n my 20 years of providing mortgage services, I have never seen a seller’s market like this. What makes this market different from the past? COVID fueled the fire of a market already experiencing a lack of inventory (available homes for sale). Add the massive demand on a market already struggling to provide a steady flow of inventory and you get a seller’s dream market.
On the buyer’s side, it brings a new dynamic to not only finding a home but structuring an offer, bracing for the appraisal (the GAP), and better understanding your financing options.
When choosing your lender, make sure they’re asking for all your supporting documentation. You do not want any surprises in the middle of the process.
It would be best if you had conversations with your loan officer as you begin the process. Some often overlooked topics to consider discussing in this phase may include:
Student Loans: With CARES Act in effect, most lenders will ask for a student loan current and projected payments, which needs to come from your loan servicer. You want to know how your lender addresses student loans.
Reserves: Your lender should know if you have reserves equal to one month of future mortgage payments. Does your lender allow retirement accounts and what percentage do they allow toward reserves? Are gift monies allowed for reserves? How many months of reserves are required?
Gift monies: Does your lender allow for gift monies, and can they be used for the down payment, closing costs, or reserves?
If you’re planning on traveling or will not be available to attend the closing, inform your lender right away so they can assist in getting a POA (Power of Attorney).
The more that can be addressed upfront, the smoother this process will be. This becomes important when waiving any of your contingencies. Waiving financing, home inspection and appraisal contingencies have become more common, especially when multiple offers are expected, or the house is located in a desirable area. In the past, home inspections would allow for additional negotiation if major or minor repairs were required. Those scenarios rarely exist in this market. In most cases, homes are being sold as is.
Buyers should never waive finance contingency without having a direct conversation with your loan officer, not their junior loan officer or assistant. And this should be a conversation, not a text message or email. If you choose to waive your finance contingency, you are essentially saying that if your financing falls through, you will pay cash for the house or forfeit your EMD (earnest money deposit).
Another “elephant in the room” that is commonly considered in this market is waiving your appraisal. With most homes still selling above list price, there is always a chance the appraisal may come in low. This is referred to as the GAP, and by waiving the appraisal contingency, you commit to pay the difference. Your realtor should be able to provide a possible worst-case scenario if there were to be a GAP, but keep in mind your realtor is not an appraiser.
With interest rates rising and these added steps in the home buying process, one may wonder whether it is still a good time to buy. Yes, it is! But, if you are considering stepping out of the market and waiting until conditions calm down, you must consider how high rates could go and how much more the same house your considering will cost in six months.
J. Mansisidor is a Specialty Loan Officer and Medical Loan Specialist with Key Bank. key.com/personal/home-loans-lines/mortgage/index.jsp