For eight years, my wife and I raised our family in a house we bought together right before we were married in 2014. We quickly grew into a family of five plus one dog. We loved our home, but we were filling up the small amount of square footage, so we decided it was time to begin the search for our next home. My story is similar to millions of others over the past two years, and the result has been an increased demand in a housing market that was already short on supply.
We were lucky enough to purchase a home we love and officially moved in a few weeks ago. I learned a few things through our house-hunting experience in 2022 that were not relevant in 2014, and I thought it would be valuable to share some of those insights.
The offer is crucial. A seller can expect to receive multiple offers in this market, so a buyer must come in with his best offer because negotiations are a rarity. The value of the offer is important, but the best offers include special provisions that act as stress relievers to the sellers.
Consider an appraisal gap clause. A hot market increases the chance a home will appraise for less than the accepted offer; an appraisal gap clause commits the buyer to pay a certain amount out-of-pocket to the seller if there is a gap in the appraisal and offer price. This reduces the likelihood of having to lower the selling price to match the appraisal.
Another provision is a repair waiver. After the inspection, there will inevitably be repairs that need to be accounted for, so a smart buyer will offer to waive a certain amount of those expenses from the responsibility of the seller.
In order to add these provisions into an offer, the buyer must have the cash available, so plan accordingly.
My next insight focused on the mortgage. Joe Clark, CFP® and managing partner at Financial Enhancement Group, told me, “In this volatile interest rate environment, it would behoove you to explore your mortgage options – fixed rate or adjustable rate – to see which one makes the most sense for your situation.” His point being, that when markets are acting unusually, the usual route should be vetted before proceeding.
This market demands the ability to make an offer without the contingency of selling your home. A recasting loan can solve this problem. It makes sense for families like mine who have cash saved but not enough to cover a 20% down payment. We were able to qualify for the loan for our new home with less down, and after our home sold, we added most of that equity toward the loan principal. The term and interest rate stays the same, but the amortization schedule is restructured for the new principal balance. This was more efficient than a bridge loan or a Home Equity Line of Credit (HELOC).
You need to be prepared – make sure you have cash saved, know your numbers before you start making offers, talk with your realtor about strategies to improve your offer, and make sure your mortgage broker knows your situation and lays out your options. Godspeed.
Financial Enhancement Group is an SEC Registered Investment Advisor. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.