Home Bidding Wars
courtesy of CNBC – Diana Olick
Homebuyers are stretching their budgets and mortgage limits to win bidding wars
- More buyers are stretching their budgets, putting less money down or using adjustable rate loans that offer lower rates.
- Buyers today need to be not just pre-approved for a mortgage but have a mortgage commitment.
- Borrowers have more options for low-downpayment loans, options that were not available as recently as just a few years ago.
Buyers today not only need to be preapproved for a mortgage, but they must also have a mortgage commitment. Home prices are hitting new highs and the gains are growing, just as mortgage interest rates are turning higher again. All of that has more buyers stretching their budgets, putting less down or using adjustable rate loans, or ARMs, that offer lower rates.
They are actually feeling emboldened to do so, thanks to the rise in the stock market and the improving economy.
Borrowers also have more options for low down payment loans, options that were not available as recently as just a few years ago. Fannie Mae reintroduced a 3 percent down payment loan that it had discontinued during the recession, and some private lenders are venturing back into subprime, although they’re calling them “nonprime” loans. These are mortgages to borrowers with lower credit scores.
Higher debt-to-income ratios
After holding steady for two years, the share of conventional loans backed by Fannie Mae with down payments of less than 10 percent rose from 12 percent to 14 percent in 2017. The expectation is that it will be even higher this year.
Banks are also willing to take on more risk in the jumbo loan space. They hold these loans on their balance sheets.
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