Though it goes without saying, spring 2016 is going to be a busy and fairly competitive homebuying season. Low mortgage rates and rising home prices are increasing demand but February’s existing home sales report shows inventory is low, at a 4.4 month supply, going into the most popular time of year to buy a home.
So in a market that is swarming with buyers, some with cash in hand, how do get your (eventually) mortgaged homebuyers a competitive edge? Two words: loan commitment.
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Get Your Buyers Committed
Though pre-approvals are the traditional route taken by homebuyers to convey to a seller that they have serious intentions to purchase, a loan commitment takes the pre-approval process a few steps further…and ups the ante.
The Loan Commitment Process
The loan commitment process is nothing more than what a borrower would do if they went the traditional pre-approval route; some of the steps are simply moved up. The borrower hands in supporting documents prior to making a purchase offer, so their verification and underwriting process is completed to the furthest point possible, even prior to finding a home to purchase.
A smart homebuyer gets a pre-approval but a serious homebuyer gets a loan commitment, which essentially means their lender is committed to loaning them the money for a home purchase, pending an appraisal. A loan commitment indicates the amount of money to be loaned, the interest rate your client qualifies for*, type of loan and period of time for which the commitment is good.
How Loan Commitments Benefit Agents & Buyers
Who benefits from loan commitments? Well, pretty much everyone involved. As a real estate agent, you benefit because your client benefits. A loan commitment gives your buyer (and therefore, you):
- The ability to present the best offer on a property. In multiple-offer situations, loan commitments show sellers that your buyer is serious and has the means to purchase. Think of a loan commitment as home financing with cash-offer power.
- Peace of mind. The process of showing a borrower multiple homes, writing purchase offers and negotiating is time-consuming. Obtaining a loan commitment means your buyer has a reliable commitment from their lender, giving you and the seller a solid buyer.
- The ability to act quickly. What real estate agent, seller or buyer doesn’t want to accelerate the loan process, as well as the exchange of ownership? A loan commitment allows buyers to expedite the process by having the vast majority of their mortgage already approved.
Though we all know that shopping for a home with a pre-approval is better than without, a loan commitment will give your buyers a significant head-start in the loan process and the power of a cash buyer in a multiple-offer scenario.
* This is a qualified rate not a locked rate, they are subject to change based on the market at the time you find your home to purchase.