Home buyers should not give up on their dream
On January 3rd of this year, the 10-year treasury yield stood at 1.631%. This was up from the low of .508% on July 31, 2020. Fast forward to March 31, 2022, and we were at 2.320%. 30-year fixed rate mortgages have basically doubled from 2.5% to almost 5.0% and continue to rise.
Has this rise in rates at least slowed the escalation of home prices? Not yet. At Blue Adobe Mortgage, we are still seeing first time homebuyers and buyers with limited down payments being squeezed to the sidelines. Cash is king and overbidding is still the norm.
After almost 30 years in the mortgage business, nothing is making much sense or is normal about today’s real estate prices, interest rates and stock market. To even play in the arena with the big dogs of all-cash and huge down payments, buyers with limited means must be resilient and bold. This market is not for the faint of heart.
But many borrowers are resilient. The American Dream of homeownership burns bright inside them. They continue to write offers that are over purchase price, use short escrow periods and waive some contingencies in many cases. A borrower really needs to have a great team with their Realtor and mortgage banker watching out for them. This market is not for everyone.
Today being fully underwriter approved is more important than ever. It can mean the edge that is needed to get their offer accepted. In my opinion we have three levels of approval.
“Pre-qualified” is where a client calls the lender and walks through the three main areas of what is needed to meet lending guidelines: debt to income, down payment, and credit. No paperwork is provided at this point, and everything is based on the buyer’s honesty.
Pre-Approved” is where the lender has collected the required paperwork from the borrower like bank statements, tax returns, W2’s, has pulled credit and typically runs the file through the automated underwriting process. If more information is needed to explain the borrower’s unique scenario it should be asked for at this point (not 3 days before they are trying to close escrow). This is where the lender counts because this is where the paperwork is analyzed and reviewed. In many cases this is where the lender can suggest ways to make the file stronger and increase the client’s borrowing capacity. A good lender digs deep and answers all questions they know will be asked by the underwriter. If all meets the guidelines a pre-approval letter will be issued.
“Full underwriter approval” is a new checkbox on the California purchase contract that just came out this year. It is an option if checked that says the borrower has gone through the highest level of steps to get them to the furthest point in the approval process, just shy of entering in to contract on a home. At this level the lender has handed the file over to a true underwriter to get the final stamp of validation and approval. If the lender has done a good job and the borrower has supplied all the paperwork requested a Fully Underwritten Approval can be issued.
Lastly, buyers should be aware that not all lenders and Realtors are the same. It is always best to use a local lender and a local Realtor who knows and understand the market. Nobody wants to see a pre-approval letter from some internet lender or a contract from a Realtor outside the area. The team the buyer works with should be solution minded and have solid reputation of performance. Do not chase a low rate or hitch your wagon to an online Realtor or lender who does not ask them for the paperwork before handing them the approval letter.