IS THE SPRING MARKET EVEN A THING
When Spencer started Real Estate 7 years ago, I honestly did not believe there was a 'Spring Market'. I was kinda a brat about it. I would say things like, "why can't the market be more balanced? or do you really need to use the term Spring Market all the time? Is it really a thing?" Fast forward 7.5 years and here I am smirking behind my computer as I am writing a blog post with the exact phrase I did not believe existed. Wow, I have really been humbled. Alright, so the truth is, in Minnesota there is a Spring Market and right now, as of April 2019 it is getting hot. So what does that mean for you as a consumer or spectator? I am going to give you a look into my perspective as a lender and how I feel you can have a step up against your competitors as you look to purchase your dream home and it all starts with the power of Cash.
HAVE YOUR CASH READY: Down Payment
The Down Payment on a home are the funds that you as the borrower need to bring to the table to purchase your home. There are options as low as 3% down, which is for example 3% of 200k (home sale price) = $6,000. This $6,000 needs to be real money. It can be a gift from a blood relative, but it has to be sourced back to a bank account at time of approval. It is critical you have these funds available prior to meeting with a Loan Officer or Real Estate Agent if you are serious about buying within the coming weeks to months. The reason being...Spring Market! Houses are not lasting long on the market if they are priced correctly. We are seeing homes receiving multiple offers within the first 0-5 days on the market. You need to be ready!
The reason it is critical to have the funds available is because without the proof of the funds a good Loan Officer will not provide you with a pre approval letter to make an offer on a home. When a listing agent (agent who has listed the home you are looking to make an offer on) reviews your offer, they want to be sure your offer is accompanied with a pre approval letter that proves you can actually purchase the home.
MORE CASH AND MORE APPROVAL POWER: Margin
I would highly recommend having more than your down payment as available cash. Buying a home is not a small transaction. It is not like buying a car, or planning for a vacation. There are many variables that effect your power to purchase the home. The more available cash you have and margin to have more lended to you, the more influence you have in the negotiations. Let me explain:
When being pre approved for a loan it is common practice for a Loan Officer to pre approve you for the max you can purchase. For example: your Debt to Income allows you to purchase a home up to $300,000 with the seller paying 3% in closing cost. This would be $X,XXX per month as a mortgage payment. This is with an interest rate of X.XX%. This is an example of how a Loan Officer will present your pre approval. I have chosen to pre approve my borrowers a bit differently. I request that they determine how much they can afford in a monthly payment. I will then pre approve them for that value and provide them with a home value number. Most of the time, this amount is significantly below what their max approval is. Here is why I take this approach, we have margin. Having margin in all areas of life is healthy, but especially when trying to purchase a home.
Example #1 (being pre approved for your max)
You receive a pre approval for $300,000 with seller's paying 3% in closing cost. This is your max amount. You will not be able to lend more than $300k. You sit down at your coffee table and pull up your MLS portal and start searching homes. You favorite 5 homes and send them to your Realtor. All of them are $295-$305k purchase price. I can already tell you, in this market. Shopping this way is likely going to result in several offers being written and you experiencing a whirlwind of emotions as you fall in love with each and every home you write an offer on.
The reason this is going to happen is because homes are currently selling for their listing price and some even higher than their listing price maar.stats.10kresearch.com/docs/hso/x/report?src=map. When there are multiple offers in on your dream house and you can only offer the list price, you are tapped out. Unless you have more cash you you bring to the table, you will have squeezed all your buying power out simply by trying to buy at the top of your budget.
Example #2 (being approved through me):
You call me and tell me how much you can afford per month in a house payment. I will then pre approve you and provide you with your buying power with that budget value. You will pass this amount on to your Realtor and he/she will set you up with a MLS portal for you to start browsing homes. You begin to favorite homes that are between $295K-$305K because this equates to the budgeted amount you feel comfortable paying. You submit an offer and your agent comes back and says, "there are multiple offers, is this your highest and best offer?" Your response, "no, but let me check with Amber first!" We recalculate your monthly payment with a $310k offer price, because we have margin. You submit your offer and you win, because you had margin to go higher and you were not shopping at your maxed amount.
It sounds simple to me, but not all Borrowers, Lenders, Realtors or Consumers want to shop this way because their is pride in knowing their max pre approval amount, which you can still know, but do not shop this way. I believe it is more important that you find a home you can afford, than a home that leaves you house poor because you thought you could afford the home because you were approved for it. These are two different things! Do not be fooled by these two amounts and the buying power each has.
"What I can preapprove you for is different than what you can afford."