Think outside the home-buying box
Everyone’s heard standard home-buying advice like “start saving early” and “work on your credit score.” But in a difficult market, winning the home you want often takes a more competitive edge.
Fortunately, there are some lesser-known ways to ease the process and improve your chances of snagging that dream home.
Mortgage expert Ivan Simental revealed some of these creative home-buying strategies on a recent episode of The Mortgage Reports Podcast. Here are the seven tips he had to share.
Listen to Ivan on The Mortgage Reports Podcast!
1. Get a fully underwritten preapproval
Most experts will tell you to get preapproved before shopping for homes. But not all mortgage preapprovals carry the same weight.
Traditional preapprovals aren’t set in stone. They don’t require a super thorough look at your finances, and things could still change before closing day, throwing your deal off in the process. But a fully underwritten preapproval is almost guaranteed. The lender will look at your credit, financial documents, and application details before signing off, making extra sure you have the resources to cover that payment moving forward.
This kind of preapproval can give a seller more confidence in your offer. It can also speed up your closing process since much of the documentation and underwriting have already been done.
When you find a home you love, you can even have your loan officer give the listing agent a call to tell them you’ve got an underwritten approval.
“Have them call and say ‘Hey, look. Our client, Bob, is already fully underwritten and fully approved, and we are 100% confident that we can close our deal without any hiccups,’” Simental said. “This call will give them the certainty and confidence to say ‘Okay, I trust this person.’”
2. Waive contingencies
If you’re up against other bidders in a hot market, waiving contingencies — certain clauses in your sales contract — may be able to help, according to Simental.
You could waive your inspection contingency, meaning you can’t back out of the deal if something arises during the inspection. Or you could waive your financing contingency, which means your deal won’t hinge on getting mortgage approval. But use caution when passing on these buyer protections.
“This only works if you are already fully preapproved and underwritten, and you feel 1,000% solid on your loan approval,” Simental said. “Make sure that you talk to your loan officer before you do this.”
3. Make a bigger earnest money deposit
An earnest money deposit is a show of good faith. It’s money the seller gets to keep if you back out of the deal against your contract — so the more you can offer, the better.
“Give a little bit more towards your earnest money deposit,” Simental said. “Maybe they’re requesting $5,000. Instead of $5000. Say, ‘Hey, you know what? I’ll give you $10,000 as my earnest money deposit.” According to Simental, this shows you’re serious about purchasing the home and that, “no matter what comes up, you want this house.”
4. Add an escalation clause
If you love a home and are afraid of getting outbid, an escalation clause may be the answer. With this clause in place, you agree to automatically increase your offer (up to a certain threshold) if another buyer outbids you.
“It can help you be ultra-competitive,” Simental said. “Since we all know bidding wars are [still] fairly common these days, the escalation clause commits you to say that if other bids come in over yours, you’ll raise your offer.”
The nice thing about escalation clauses is they work automatically. So if negotiations are moving fast (and you’re at work and can’t respond), your bid will increase just the same. They also ensure you never go past the top end of your budget.
5. Give sellers more time
Remember that sellers are often home buyers, too. They might need some time to find a new house, pack, move, and do everything else that comes with a home purchase. So for many, offering a leaseback — or the opportunity to stay in their existing home a bit longer — can be an attractive offer.
“Give them 60 or 90 days if they want,” Simental said. “You want that house, you want to move into that house, and you want to make sure that they are comfortable in leaving, so give them a leaseback.”
Of course, this is only possible if you have a place to stay in the meantime. Additionally, you’ll want to think about the costs. You might need to pay your current rent and a month or two of your new mortgage payment during a leaseback. You can also ask the seller to pay a certain amount to lease back the home in your contract.
6. Choose a great agent
A good real estate agent can make all the difference, according to Simental, so choose yours carefully. “It’s more important now than ever for buyers to shop around for an agent,” Simental said. “Don’t simply hire your best friend’s aunt’s grandma, who is a Realtor. Interview them, yes, but also interview other top Realtors in the area.”
Simental recommends interviewing at least three agent options, making sure that your goals and communication styles align. You should also consider their experience and any referrals you receive for them.
7. Buy the ugliest house on the block
Most people want a move-in ready house, but purchasing one that needs a little bit of work? That could often be the best move.
“Put a little TLC into the property,” Simental said. “Maybe paint it, cut the grass, do new landscaping, go and change the flooring — little things that will add tremendous value.”
Simental said he did as much, buying an “ugly” home at a 20% discount. He then fixed it up and a year and a half later, sold it at a profit. “When I sold, I made a very nice chunk of change, because I bought the ugliest house on the block that was already below market value,” Simental said.
Get help along the way
There are many more tips that a seasoned pro can offer you, so make sure to connect with an experienced real estate agent and mortgage lender before beginning your home search. They can help you see success.