Understanding The Loan Process: Catering To Potential Buyers

While you don’t have to make every business decision based on what the real estate market is dictating, you should at least have a good idea of what is going on. On one hand, the real estate market is recovering. However, on the other, the process is painstakingly slow and the current rebound has not reached the level many insiders predicted it would. The lack of traction is due, in large part, to the fact that buying a home is much more difficult in this environment than in years past. Without loan programs and buyer demand, it will be difficult for the market to fully recover. If you are looking to rehab and flip to an end buyer, you should know just what may be holding your buyers back. More often than not, the loan process is serving as more of an anchor than a facilitator. The more you understand about loans, the better prepared you will be to deal with obstacles as the come up.

Loan programs are constantly coming and going, but the borrowers themselves have changed. More borrowers are carrying a higher amount of debt now than ever before. Between student loan debts and credit cards, there is not a lot of room left to accommodate a housing payment. Even if a buyer could conceivably afford it, they have to fit the debt-to-income criteria set forth by the lender. This number is typically around 45-50% of their adjusted gross income and is quickly eaten up by the loan payment, taxes, insurance, car payments and student loan and credit card obligations. With more buyers carrying higher amounts of debt, they are looking more for housing affordability rather than lavishness. They want houses that are move in ready at a price they feel they can afford. If they don’t get it, they are willing to rent and wait until the market or their financial situation changes.

In addition to higher debt, many of today’s buyers are facing underemployment or no employment at all. If you are in an entry level position, or even on the back-end of your career, you can lose your job at any time. Even without the prospects of job loss, many of today’s wages are down – forcing buyers to wait the market out hoping things change financially on their end. With increased debt and lower wages, there is not a lot of room for a housing payment. As an investor, you need to know what is going on with buyers in your market before you make any purchase – especially a rehab project. Buyers will always be out there in any market, but if that number is reduced in your area, the property may sit on the market for an extended period of time.

These factors don’t leave a lot of room for savings. While there are still programs with minimal down payment, many of the changes to these programs have left buyers without many options. FHA programs allow 3.5% down payment, but they come with a private mortgage insurance (PMI) payment for the life of the loan, in addition and stricter guidelines on the property itself. On top of the 3.5%, buyers will also need money for closing costs and property taxes at the closing. What this means as a seller is that you may need to fix your property to have it pass FHA appraisal guidelines to suit your target buyers. This means money out of your pocket that you may not have factored into your purchase price. If you are looking to quickly flip your property, you would need to find a cash buyer or take a lower price. The alternative is to spend money to ensure that the house will pass any inspection or appraisal criteria to find the most buyers possible.

Even if you find a buyer that appears to have met every criteria, there are still many smaller items that can derail a potential closing. This means that you need to stay on top of the process from beginning to end. Never assume your deal will close before it does. Between the appraisal, title, insurance issues and last minute snags, there are many hurdles along the way that a buyer must jump over. As a seller, if you find a qualified buyer, you need to do your part to push the deal towards closing. This means making yourself available with anything that comes up on your end and handling things as quickly as possible. The buying process is hard enough without a seller getting in the way.

Even if you are not currently seeking a loan, you should know what is going on with the mortgage market. If you know what the potential problems are for buyers, you can tailor your properties and deals to their specifications. The alternative is waiting on buyers to come to you. In this market, you may be waiting a very long time. You may have a quality property, but if you are priced too high in your market, you will have a tough time getting it sold. Take time every few weeks to reach out to a local mortgage broker or lender and find out any changes in programs that may be beneficial to you. The more you know about your business, the better investor you will be.

The buying market is constantly changing, as programs are constantly coming and going. The slightest tweak can send buyers running to buy or staying in their rentals. As the market changes, you need to change your strategies with it. One thing is clear; buying a home is not as easy as it used to be.

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