Two big things surfaced from the pandemic so far - a deep-seated need to nest and a chaotic economy giving rise to historically low interest rates. Both phenomena led to a huge demand for home buying.
People know they want a home or a bigger home or a home with a yard or a home with an office or a second home or a home closer to family, but how to make that happen before rates go up?
If you’re somebody who wants to maximize your investment, and a mortgage is part of your equation, this is your roadmap for getting your ducks in a row in the likely time left before rates start rising.
And What About Rates?
Rates have been artificially suppressed to help support our economy during COVID. As our economy improves, artificial support will be tapered.
For a long time, pundits expected low rates into 2023, but more recently inflation has been ramping up and some are arguing in favor of tapering as early as this year.
And hopefully tapering will be gradual.
So let’s assume for sake of argument that you have until April 2022 before rates take a significant bump. What do you need to do to be locking in your rate in March, approximately six months from now?
Tee This Up For The Next Six-ish Months
To start, here are the milestones, you’ll need to complete:
Engage a strong buyer’s agent to help you navigate the landscape
Get underwritten by a strong lender and establish your purchase parameters
Lock the rate offered by your lender
Organize liquid funds for your down payment and closing costs
Find your target property
Make an offer and negotiate acceptance
Navigate contingencies in escrow, assuming there are any in your contract
Close!
Naturally the rate lock is the topic of this post, but if you’re not ready to move forward with all the other pieces, your lock will likely expire.
Building Your Team
I always say starting with your buyer agent is your first step. I’m biased, of course, but in my mind your agent is quarterback for the whole team.
Some buyers start with the lender, but whichever way you start, your agent and lender need to work together seamlessly. If your agent doesn’t have a track record with your lender, opportunities might be missed to make the most attractive offers. Start with one or the other, but defer to that professional’s recommendation for the next team member.
This is not the time to get sucked in with an online lender promising a fraction of a point better rate. In this crazy market with so many buyers, sellers will take offers with local lenders with a track record of getting deals done. Really, they will often choose the cash buyer to skip the lender risk altogether, but if you have to buy with a mortgage, make sure you have a boots on the ground, nimble lender on your team.
Pre-Qualification vs. Pre-Approval vs. Underwritten Pre-Approval
Pre-qualification is all but irrelevant these days. While it was “the thing” 20 years ago, such a letter doesn’t commit a lender to make a loan and doesn’t provide any comfort to a seller that a subsequent loan will fund under the timeline provided in the contract.
More recently, pre-approval was the thing, but these letters merely demonstrate that a buyer meets the basic criteria for obtaining a loan. Income, credit score, debt levels and down payment sources have been verified. This kind of pre-approval will still work in a non-competitive market, but these days, most markets are highly competitive.
For an underwritten pre-approval, you go through the full underwriting process. Historically. this step was done once you found a home and opened escrow.
Completing underwriting ahead of time is an extra step to tell a seller you are serious and your loan is going to fund in a timely manner. This process requires more time and effort upfront, but it ensures a faster and smoother loan finalization process when you get into escrow.
Another reason to go through underwriting prior to making an offer (regardless of the market) is if your financial situation is unique. After reviewing your financial situation, a good lender should advise you whether this step is needed or not. If there are issues, you’ll find out sooner rather than later.
At this point, talk to your lender about locking the rate and any fees involved. If you get your rate locked, you’re immune from increases, but your lock won’t last forever, so hopefully you’re getting the other milestones accomplished in tandem, including organizing your liquid funds for your down payment and closing costs.
Finding Your Next Home & Getting An Offer Accepted
It’s still very competitive out there. Getting into a home on a short six-month timeline requires a carefully considered list of “must haves” and the discipline to stick with that list and jump on any property that meets most of your criteria.
Because you’ve pursued an underwritten pre-approval strategy, you will be positioned to make offers without a loan contingency (because there is no risk your loan won’t be approved), but discuss this with your lender before making a decision to fly without this contingency.
I know of at least one lender who will guarantee to get an appraisal within 10 days, so their borrowers can make offers with just one shortened 10-day inspection contingency.
Naturally, you won’t want to fly without any of your available contingencies if you don’t need to, but competitive situations call for appealing offers. Minimizing contingencies is one way to make your offers stand out.
And not every sale is going to be competitive, but if you’re buying in the uber-competitive range below $1.6M, be prepared to compete for your property. And plan on making offers on several properties before landing one and entering escrow.
Last Thoughts
On paper this all seems easy and fast, but I’m here to tell you it’s going to hard to get it all done in six months, especially in the more competitive price ranges, but don’t despair. Starting is key and sticking to a disciplined plan is your ticket to getting this all done before rates climb too much. This is your first step!
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