The coronavirus pandemic has added a wrinkle to the plans of many would-be homebuyers and sellers. Research from OJO Labs shows that 80% of buyers have run into temporary delays related to COVID-19.
With interest rates at record lows, now could be a prime time to get a mortgage loan if you're ready to buy. Online marketplace Credible can help potential home buyers navigate their home loan options by comparing mortgage rates from multiple lenders at once.
However, shrinking inventories of homes for sale could increase your odds of getting caught up in a bidding war. Navigating a bidding war can be challenging but it's not impossible. Here's what you need to know to emerge the winner.
5 ways to win a bidding war when buying a house
1. Get pre-approved for a mortgage loan
Pre-approval from one or more mortgage lenders could work in your favor. Having a pre-approval letter in hand shows sellers that you're serious about buying and that a bank has already taken a look at your credit and finances.
"A pre-approval is definitely necessary if you're going to stand a chance," said Maxine Peck, owner of Maxine Peck Real Estate.
Talking to lenders should be the first step in the buying process, Peck suggested. Lenders can review your financials to help you determine how much home you can afford and what kind of mortgage interest rates you might qualify for. If you haven't been pre-approved yet, visit Credible to compare rates and get quotes from multiple lenders.
2. Be prepared to pay cash
While mortgage pre-approval can help win a bidding war, cash to buy the home could be your trump card. Credible can tell you how to get pre-approved for a mortgage. After all, not all pre-approvals are the same. You can get started on the pre-approval process through Credible today.
Peck said the market is always favorable for cash buyers and winning a bidding war may hinge on how competing offers compare to cash offers. "A competitive cash offer can win a bidding war because there is no appraisal or loan contingency," she said.
If an appraisal comes in under the agreed-upon sale price, for instance, that could throw a wrench in your plans to get a mortgage loan. When considering a cash purchase, keep in mind any additional cash you may need to cover closing costs, initial repairs to the home, and ongoing maintenance.
Draining cash reserves to win a bidding war, however, may not make sense if you're left with nothing to cover ongoing homeownership expenses or financial emergencies.
3. Do your research
One important step in the buying process is checking out what comparable homes in the area are selling for. Peck said this research is essential for ensuring that a home isn't listed above market value, which can help with making a realistic offer.
Go too high with an offer, for example, and you may end up paying more for a home than you'd like. Go in too low without taking a look at comps and you may lock yourself out of a bidding war if a seller passes up your offer for another homebuyer.
4. Be prepared to make an offer quickly
Time is of the essence when trying to beat another homebuyer to the punch. Dragging your feet could cost you an opportunity to scoop up a dream property.
"In a seller's market like today, I encourage my clients to act quickly if it's a home they love," Peck said.
That adds a certain amount of pressure to the homebuying process. But it can also be helpful for narrowing down what you do or don't want from a home.
5. Include an escalation clause
Escalation clauses can give you an edge in a bidding war. These clauses give you an opportunity to increase your offer if there's another homebuyer that's trying to outbid you.
Typically, this is worded to specify incremental increases in your offer, up to a certain amount. So say you make a $350,000 offer on a home and you're willing to go $10,000 above that. You might include an escalation clause that allows you to increase your offer by $2,000 increments above the competing offer.
If another buyer offers $352,000, your offer would increase to $354,000. Escalation clauses give you an automatic way to counter another bidder. But make sure you and your agent are clear on where increases should max out. Otherwise, you could end up making a much higher offer than you intended.
What are today's mortgage rates?
Mortgage rates have continued a downward trend following the Federal Reserve's decision to cut rates in the first quarter of 2020. According to Freddie Mac, the U.S. weekly average for 30-year fixed-rate mortgage rates was 2.93 percent as of September 3. Month over month, mortgage rates are down from 3.13 percent at the end of June.
Mortgage rates, both for purchase loans and those looking to refinance mortgage debt, are hovering at record lows thanks largely to economic uncertainty stemming from the coronavirus pandemic. As millions of Americans remain unemployed and reopenings stall, less demand for homes is helping to maintain low-interest rates.
Credible makes it easy to compare rates and lenders in one place so you can find the best mortgage loan for your needs.