Question: How do I improve my chances of buying a home in Colorado Springs when there are multiple offers involved?
That is an excellent question!
There are often several people vying to purchase the same house. In general, all-cash offers (no mortgage involved) have the upper hand because those buyers can close very quickly. The downside to those, from the seller’s point of view, is that all-cash buyers often expect to receive a discount. The seller then has to decide between the certainty and speed of an all-cash offer and the higher price but slight uncertainty of an offer involving mortgage financing.
Assuming that you are one of the typical buyers who will get a mortgage when you buy your home in Colorado Springs, you’ll be able to maximize your chances of success by following a few simple guidelines. You should keep in mind that sellers are not looking only at the highest offer; they are looking at the offer that has the best chance of closing on time. An offer that is $5,000 higher than all the others is worthless if the buyer turns out to be unable to get financing after three weeks. Then the seller has to start all over.
First, get a solid preapproval from a Colorado Springs lender. By “preapproval,” I mean that you have provided your mortgage lender in Colorado Springs with all the documents needed for a full loan approval: tax returns, pay stubs, bank statements, and letters of explanation for any irregularities that may appear on your credit report. The Colorado Springs mortgage lender’s preapproval letter should specify that they have pre-underwritten your file, have run one of the automated underwriting systems (Fannie Mae’s Desktop Underwriter is one of the most common. All lenders use it) and have received an approval. Do not confuse “preapproval” with “prequalification.” The latter is just the loan officer’s opinion that you are, in a general sense, qualified to buy.
You can improve your appeal to a seller even more by getting a “TBD” approval from the lender. This means that the property is “To Be Determined.” Your loan application is thoroughly reviewed by the lender’s underwriter and approved, pending the actual purchase contract, appraisal and title documentation. This is a much stronger approval than the preapproval.
You can agree to waive the loan contingency. A typical purchase contract contains a clause that says, in essence, something like this: “This offer is subject to the buyer’s applying for and receiving a loan under these terms:…” The loan contingency, which typically lasts for 17–21 days, says that if for some reason you are not able to get the loan, you can walk away from the deal without forfeiting your deposit. With a loan contingency—and they are in most offers to purchase—the seller’s property will be off the market for at least the contingency period. If you waive the loan contingency, it means that you could forfeit your deposit in the event that you couldn’t get the loan. You can minimize your risk by getting the TBD approval I described above.
You could waive the appraisal contingency. This is a clause in most purchase contracts today that says, “If the property doesn’t appraise for the offer price, the buyer can walk away without losing the deposit.” Let’s say you offer $400,000 for a property and the seller accepts your offer. You plan to make a 20% down payment and get a loan for the other 80% ($320,000). The appraisal says that the property is only worth $395,000. In most cases of low appraisals, the buyer and seller renegotiate the price. By agreeing to waive the appraisal contingency, you are saying that you will put up more money or get a larger loan if the property doesn’t appraise for the purchase price. In the example above, you would have the choice of getting a loan for 80% of the appraised price ($316,000) and putting up the additional $4,000, or getting the same $320,000 that you originally planned to get, but paying mortgage insurance for a year or so, since the $320,000 loan would now be more than 80% of the appraised value. You would then have monthly mortgage insurance, and it is here that I highly suggest working very closely with a TRUSTED lender and licensed real estate professional to control your risk.
Finally, write a personal letter to the seller. It may sound corny, but buying and selling a home is one of the more emotionally-charged events in most people’s lives. Since you may never have any contact with the seller, writing them a personal letter to tell them how much you love their beautiful home and would love to raise your family there can tip the scales. Believe it or not, it sometimes works!
About Handcrafted Home Mortgage: With three decades of experience, locally owned and operated, Handcrafted Home Mortgage offers home mortgage and home refinancing in Colorado Springs and surrounding areas. As artists in the craft of lending, our Colorado Springs mortgage specialists will help craft the ideal loan for your personal lifestyle and situation.