Meeting with financial advisor

There’s no secret that it’s an extremely competitive real estate environment out there right now if you’re looking to buy a home. Supply is extremely tight. In the market for existing homes, which accounts for about 90% of the overall housing market according to CNBC, if sales continue at their current rate, there are only 4.3 months’ worth of supply available.

In the market for new homes, things are slightly better. Given the number of new homes available on the market, it would take 5.7 months to exhaust supply. For perspective, the housing market is considered in balance between buyers and sellers if there’s a six-month supply. However, the news isn’t all rosy there either. The number of new building permits and the level of new construction actually happening were both the lowest they had been in nine months in the report.

In this kind of market, it’s important to take any advantage you can get. There may be multiple offers on a home within hours of it going on the market in some of the nation’s hottest areas.

There are many things that can set your offer apart and having a high bid can certainly help, but you may be surprised to find that the high bid doesn’t always win.

Get Approved Before You Shop

There are many things you can do to make your offer more appealing to sellers. However, one of the biggest is to make sure that you have your financing lined up.

Getting approved for a mortgage before you shop can be a big deal when there are multiple offers on the table. Some lenders call this preapproval, but regardless of what it’s called, you need to make sure your lender is clear with you about what it means because there are different types of approvals. We’ll break down how this process works by taking a look at the three levels of our Power Buying Process™.

Prequalified Approval

A Prequalified Approval involves the simplest process. The lender pulls your credit to get a look at the debts listed on your credit report. This includes revolving debt like credit cards, as well as installment payments like personal, student and car loans as well as your mortgage if you have one. They also get your three-digit FICO® Score from all three major credit bureaus. The median FICO® Score is one of the things that helps determine which loan options you qualify for.

In addition to pulling your credit, the lender will ask you for verbal or written (but unsubstantiated) statements regarding income and assets you have available to qualify for the mortgage.

Your debt payments will then be compared against your monthly income in order to calculate your debt-to-income ratio (DTI). This helps determine which loan options you qualify for and how much you can afford.

Because your income and asset statements are unverified, this serves as a good estimate of what you might be able to afford – but that’s all it is. If you’re in a competitive bidding situation, sellers might very well pass on your offer because they don’t know how seriously they can take it.

Fortunately, there’s a way to give both yourself and the sellers you’re trying to win over confidence in your offer.

Verified Approval™

We highly recommend all of our clients take things one step further and get their income and assets verified along with the credit pull in a Verified Approval.

With this option, you share your income with us through documentation like pay stubs and W-2s. You’ll also share documentation for any assets you want to use to qualify with us. Most commonly, these are shared through statements for one or more bank accounts.

Once all of this information is shared with us, we promise to return a Verified Approval Letter to you within 24 hours. Because your income and assets are verified, the seller can be confident that your offer has strength on par with that of a cash buyer. Because your income and assets have been approved, they know that your financing won’t fall through.

Jackie Alley is a REALTOR® with Berkshire Hathaway HomeServices Georgia Properties covering the Northeast Atlanta Metro area.

Alley said she’s able to tell the other agent the loan has already gone through underwriting and that she’s just trying to match her buyer with a house at this point. This helps assure sellers and their agents that the loan and any paperwork will be done on time, so everyone can get to the closing table.

Having a Verified Approval is important because it could help you beat another offer whose buyer offers a higher price, but who hasn’t secured financing yet.

How confident should you be in your Verified Approval? To help give you an idea, we’re putting our money where our math is. If your loan doesn’t close through no fault of your own after our review, we’ll give you $1,000.1

Having verified financing isn’t necessarily the only concern a home buyer may have. If you want to protect your rate while you shop in a rising rate environment, you can take the final step and get a RateShield™ Approval.2

RateShield Approval

Available on 30-year fixed conventional, FHA and VA loans, our RateShield Approval can help you have increased confidence during your offer process by protecting your monthly payment. How does that work?

With a RateShield Approval, you can lock your rate for up to 90 days while you shop for a new home. If you find a home within 90 days, we compare your original rate to interest rates on the day you get us your purchase agreement. If rates are lower, you get the lower rate. If they’re higher, you keep the rate you initially had. It’s a win-win all the way around.

If you know what your rate will be when you buy, it’ll help you present your offer with confidence.

Bidding War Strategies

While having rock solid financing is helpful, it’s not the only thing that’ll help you in a bidding war. Here are a few other tips you might find helpful.

Drop Contingencies

A clean offer is one with as few contingencies as possible. Sellers are looking to move. They don’t want to have to put their house back on the market because the deal fell through.

A common contingency is an appraisal contingency, because mortgage companies won’t pay more for a property than it will appraise for. However, in a contested battle for a home, it’s common that buyers are willing to pay a certain amount above the appraisal price (e.g. appraisal plus $5,000). You’re bringing the difference between the appraised price and the agreed-upon purchase amount to the closing table in cash. If you have extra savings, this could be one way to give your offer a leg up. Just be careful not to stretch your budget too thin – you still have to come up with the down payment and closing costs as well.

Another thing you might consider dropping is the home inspection contingency. While you should still have an inspection done if you care to know what potential issues may arise with the house down the line, you might consider not having the sale be contingent on the inspection – a contingency that might make them pass on your offer.

Escalation Clause

Another thing that can be helpful in a competitive bidding situation is to insert an escalation clause.

Let’s say you put in an offer on a house for $310,000. You then insert a provision in the offer that says you’ll go $1,000 above any offer up to $320,000. That way, your bid doesn’t go above your absolute best offer, but you don’t have to overpay by putting in the super-high bid no one is likely to match as your first offer.

Be Flexible

Flexibility can be important for motivated sellers. For example, they might want to be out of the house by a specific closing date in order to let their children start the school year at their new school rather than transferring. If you can get the appraisal and home inspection done quickly, that can be a plus.

Or it could work the other way around if it’s the spring and they want a month to wait for children to be out of school. Either way, the ability to work with these types of situations is a huge bonus for some sellers.

Check out this post for even more tips on winning a bidding war in a multiple-offer scenario.

If you’re interested in taking advantage of our Power Buying Process, you can get started online or give one of our Home Loan Experts a call at (800) 785-4788. Any questions? Leave them for us in the comments.

1 Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, debt, property, insurance, appraisal and a satisfactory title report/search. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Quicken Loans’ control, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close, you will receive $1,000. This offer does not apply to new purchase loans submitted to Quicken Loans through a mortgage broker. Additional conditions or exclusions may apply. Verified Approval within 24 hours of receipt of all requested documentation.

2 RateShield Approval locks your initial interest rate for up to 90 days on 30-year conventional, FHA and VA fixed-rate purchase loan products. Your exact interest rate will depend on the date you lock your rate. Once you submit your signed purchase agreement, we’ll compare your rate to our published rates for that date and re-lock your interest rate at the lower of the two rates for an additional 40 to 60 days. Additional conditions or exclusions may apply.

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