Trying to buy a house? This Move Might Help You Catch One
During the second half of 2020 and all of 2021, mortgage rates settled at some of their lowest levels in history. These days, rates are still competitive in their own right. But since the start of the new year, they have been higher than they were at any time in 2021.
This does not prevent buyers from buying properties. In January, the average home spent just 61 days on the market, according to data from Realtor.com. This is the fastest pace of sales ever recorded.
Of course, quick sales are a good thing for sellers. But the rapid pace at which homes are flying off the market is creating a challenge for buyers. This extends to everyday buyers and real estate investors looking to grow their income property portfolios.
If you’re eager to buy a home in today’s market, there’s one decision that could give you an edge over other buyers. But whether it can be done is another story.
Skip the mortgage, if possible
One of the main reasons homes are leaving the real estate market so quickly is because some buyers are coming in with cash offers. Cash offers generally attract sellers because they can lead to quick closings and fewer hiccups.
The problem, however, is that ordinary buyers may not have the cash to buy a home outright. This is especially true in today’s real estate market.
Over the course of 2021, housing prices rose 17.5% from 2020, according to the Federal Housing Finance Agency‘s housing price index. And while buying a home has never been an easy thing to do, it’s an even more difficult matter in a time when property values are so inflated.
That said, in this regard, real estate investors may have an advantage over repeat buyers due to their ability to leverage existing equity to scrounge up cash. But even so, some investors might be reluctant to tie up large sums of money in a property.
Yet, in a time when homes are selling at such a rapid rate, cash offers are king — when feasible. And paying cash could be the difference between buying a home when inventory is so tight and having to wait.
Another option buyers can consider
If you can’t find a stack of cash to buy a house, that doesn’t mean you’re completely out of options. On the contrary, you can increase your chances of getting an accepted offer on a home by getting a mortgage pre-approved.
One of the main reasons sellers tend to favor cash offers is that mortgages can fail. But if you opt for pre-approval, your seller will have some reassurance that your financing is unlikely to be a problem.
To be clear, a mortgage pre-approval does not guarantee you a home loan. But if your financial situation does not worsen between the time of your pre-approval and your application for a home loan, there is no need to worry in this regard.
If more inventory hits the real estate market later this year, competition could wane and the pace of home sales could start to slow. But until that happens, today’s shoppers should consider the convenience of paying cash if that’s a possibility.