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When Qualifying for a Mortgage Isn’t Enough

in escrow

Over the past month or two, in certain markets across the United States, bidding wars have been heating up as mortgage rates continue to march lower.

The steady drop in rates has effectively stopped the bleeding in home price declines, while simultaneously making homeownership more affordable.

[You may have missed the housing bottom…]

As a result, buyers are turning up in droves to snap up properties on the cheap, often just days after they’re listed.

While this is great for those looking to sell, and perhaps even better for the economy as a whole, it’s also making it a lot tougher to snag a desirable property.

Buyers Fighting for Properties

For those who want to “get in the game,” it’s becoming increasingly difficult, despite the fact that it’s pretty darn easy to qualify for a mortgage, assuming you’ve got decent income, assets, and credit.

Sure, it’s not 2008, but it’s still easier to get more house for your buck thanks to those low rates.

But here’s the problem. Because people actually want to buy houses again, there’s lots of competition.

And since banks are a bit more fickle about dishing out mortgages, sellers are often favoring those paying with cash or putting lots of money down.

In other words, your bulletproof offer with 20% down may not be enough these days.

To beat the competition, you may have to up your asking price in a hurry, effectively paying above-market, or come in with a lot more down.

How did the ultimate buyer’s market turn into a seller’s market overnight?

20% Down is Hard Enough

Many housing proponents have already argued that putting down 20% is too difficult for most prospective buyers, so bringing in more cash at closing is probably out of the question for most.

That said, housing may not be as accessible as it may seem, which creates a bit of a catch-22.

And the last thing homeowners want to do in an uncertain market is pay more for a property than it’s actually worth.

So it looks like real estate investors are making out like bandits in the current market, while first-time homebuyers and those with little set aside are facing new problems.

For the record, if you’re thinking about going with an FHA loan, the task becomes even more trying.

Many homes and condos aren’t even eligible for FHA financing, so many borrowers who think they’ll qualify with a mere 3.5% down may be in for a rude awakening.

This could push impatient buyers into making bad decisions, often chasing the properties no one else wants, merely because their seemingly decent offer will only be accepted when no one else is biting.

Read more: Mortgage down payments 101.

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