5 myths about today’s lending and home buying environment unravelled.
1. A larger down payment is always better.
Historically buyers have lived by the mantra that ‘bigger is better’ both in terms of the size home they are buying and the size of their down payment on a mortgage application. Today, this has been turned on it’s head as buyers are looking for creative ways to get under contract with the most competitive offer.
Many lenders are offering an opportunity for buyers to take out a traditional home loan with as little as 5-10% down at exceptional interest rates. They are then turning around post-closing and re-casting the loan when funds become available (maybe from the sale of another home) to decrease the principal and modify the loan as if they had started with 20% down.
2. Waiving your appraisal contingency means more money out of pocket.
This may not necessarily be true for all buyers. It has become customary to waive the appraisal contingency in many contracts to increase appeal to the seller. Writing this in does make the offer more appealing. However, lenders are using creative tactics to help buyers save money on appraisal gaps that arise during the contract period. This could involve lowering the down payment and restructuring certain monthly fees in order to free up capital to cover that gap. Amazingly, keeping the monthly mortgage payments virtally unchanged.
3. A bridge loan is the best option for successional purchase and sale transactions.
Bridge loans have become more common and more talked about in recent years, so many buyers believe that they are their best choice for making a home purchase before selling their current property, and without submitting a contingent offer. Nothing against bridge loans, they do have a place and can be useful in some scenarios, but there are so many other options that buyers forget to consider.
Here are a few other effective choices to consider:
a. SBLOC (securities backed line of credit) - Great option to finance a down payment if you have investments that you don’t want to liquidate.
b. HELOC (home equity line of credit) - Works very well to finance a new purchase for anyone whose income can support two mortgages.
c. Place a lease on the relinquished property - Offers lender a solution aside from regular income to cover two mortgages simultaneously.
d. Cash-out refinance - Good option to free up flexible capital, but takes longer and works for people who like to plan ahead.
4. It takes 30-days to close on a home loan.
Lenders are not always buyers’ favorite people to deal with, continuously asking for more documentation, more information, and more signatures. However, they work hard to satisfy the customer’s needs. Many lenders are now able to fully underwrite and approve buyers for their home loan before the buyer even goes under contract on a property. This means that pending an address and final approval, you can be fully ready to close (financially) before even finding the home of your dreams! You will be able to offer a two-week closing timeline to sellers.
5. Working with lenders is time consuming and painful.
It doesn’t have to be. Set yourself up for success by doing a few proactive things before choosing your lender. Ask your realtor who they recommend working with, chances are they know some pretty great professionals. Call a few lenders and ask what they offer for your specific scenario. Gauge how creative they are and how willing to help you they will be throughout the process. Choose who you trust and ask for lot’s of checklists! Lenders have gone completely electronic and have streamlined their digital processes for efficiency.
Thank you for reading! Please reach out with questions about local lenders, what to ask and how to approach your home purchasing process! - The Baldwin Bain Group | natalie@boulderco.com
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Disclaimer: The advice offered here is not meant to represent legal or financial advisement of any kind, other than a general overview of ideas to ask your financial professional about. We are not a financial institution, advisor or legal council. Please consult with your personal financial advisor or loan officer regarding any specific questions you may have.