Buyers Stretch Budgets to Be More Competitive

April 26, 2018

Buyer demand is high but the number of homes for sale is low. This is prompting more shoppers to stretch their budgets, put less money down, or turn to adjustable-rate loans to prevail in a bidding war for a home. 

“The frustration with the lack of inventory is, so many of the houses are going in bidding wars, and so you know you really have to step up to the plate and you have to do your homework to be a competitive buyer,” Patrick Clark, a real estate professional with Long & Foster in Philadelphia, told CNBC. 

Higher mortgage rates and escalating home prices are prompting more home buyers to consider adjustable-rate mortgages, which offer lower initial rates for a set time before rising. Borrowers are being tempted on low down payment loan options, such as Fannie Mae- and Freddie Mac-backed 3 percent down payment loans. They’re also being lured to private lenders offering “nonprime loans” (the reimagined subprime loans). Read more: ‘Nonprime’ Loans Expand Mortgage Options

Buyers are feeling confident enough in their own finances to put more at stake to break into homeownership.

“When they’re more confident they are willing to stretch a little further, says Mike Graff, a mortgage consultant with Prosperity Home Mortgage. I think that some people realize, look, theyre not going to be in this house for 30 years, so moving to an ARM, when the rate is fixed for a period of time, theyre definitely more comfortable with something like that to lower their payment or to kind of stretch their budget a bit, so we have seen an uptick in that.

Banks are showing more willingness to take on greater risk in jumbo loans, too.

Source: “Homebuyers Are Stretching Their Budgets and Mortgage Limits to Win Bidding Wars,” CNBC (April 24, 2018)