Q: I plan to buy a home next year. When I get approved for a loan, how long do I have to bid on a home? If I’ve narrowed down my search to three homes, can I place an offer on all three?
A: What I like about your question is that you sound like you’ll be an assertive homebuyer, and one who is willing to ask questions, get educated and think beyond the norm in order to get your needs met. Frankly, you almost need to be willing to think creatively and be a vocal representative for your own interests in order to get your needs met on today’s real estate market.
1. Understand applicable approval timelines. A typical home mortgage preapproval letter is issued on the condition that the loan approval is good for somewhere between 60 and 90 days; some lenders will even extend it as long as 120 days. That approval — or an approval issued by the lender upon receipt of an actual contract — will also include a quote of an interest rate, which will also expire after a certain amount of time, generally ranging anywhere from 30 to 60 days, although the rate lock can also go as long as 120 days, depending on the lender.
These timelines are not satisfied by simply making an offer on a home; you need to get into contract on a home, go through underwriting and have the loan funded, or actually close the deal within those time frames to keep them from expiring.
Caveat: If the properties you’re considering are short sales, you might not get a response from the bank for months.
2. …But don’t be governed (read: rushed) by these timelines. Here’s the thing: Nothing bad happens if you don’t find or buy a home soon enough to meet those timelines! All that happens is your mortgage broker or banker will have to resubmit the application, something they’re going to need to do anyway with a full set of updated financial documentation whenever you do get into contract. It’s uber-quick, easy and free to get approved again, once you’ve done it the first time.
And when it comes to rate locks, they often are set to expire on a date that ends up falling right in the middle of an escrow period; some lenders will allow them to be extended for a relatively small fee. However, lately, interest rates have been on the decline, so that the going rate that kicks in when a lock expires can be even lower than the original rate quoted.
Many, many buyers on today’s market have to make several offers on different homes over many months, sometimes going into and falling out of escrow because the home doesn’t appraise at the purchase price or has problems that are revealed during property inspections. Additionally, short sales — which make up 30 percent of the national listing inventory, but as much as 70 or 80 percent of the listings for sale in individual markets, like Chicago — just plain old take a long, long time to close escrow. And that’s not at all in the buyer’s control.
As such, it’s not at all unusual for it to take a year or more for a house hunter to close escrow on his or her new home.
This is why it’s more important on today’s market than it ever has been to keep your credit in great shape; to not make any large purchases or big career changes without first consulting with your mortgage pro; and continue saving (not depleting) your down payment and closing-cost fund between the time you first are approved for a home loan and the time you actually close escrow on a home.
What’s critical is that you find a home that will work well for your household over the long run, is in acceptable condition for you and is affordable for your budget. I would say that these expiration timelines for your loan approval and interest rate should be given very little or no consideration in terms of making you feel rushed in finding or buying the right home for you.
3. Buyer beware of making offers on multiple homes at once. Legally and technically speaking, there is nothing that prohibits you from making offers on more than one home at once. However, except in the most dire of circumstances, I’d encourage you to take on one home at a time. In a normal market, you’d be able to make several offers, get answers to all within a day or so, and then make a decision, exercising your contingencies to back out of the properties you decide against.
However, on today’s market, you might make an offer on a regular home (where no bank is involved) and get an answer back tomorrow. Then, another one of your three might be an REO (bank-owned property), where you get a response to your offer in 10 days’ time. Then, the other property might be a short sale, on which you would not get an answer back for four months.
Additionally, REO listings might actually require you to turn over a real cashier’s check, and may limit your ability to recoup your deposit money once a certain time period has elapsed.
So, while you and your agent might be able to keep track of everything, including all the timelines for your deposits and the actual deposit-money dollars, the more properties you get involved with, the more chance there is of a mix-up that ends up with you breaching a contract and/or losing your deposit money. And depending on the specific terms of the various contracts (banks often impose more burdensome terms and limit contingencies on buyers of REOs and short sales) these can be easier than you might think to run afoul of.
I’d suggest this: Pick the property you like the most and make an offer on it. If it’s a regular sale, ask the sellers to respond within 24 hours, and let their agent know that the reason for the rush is because you have other properties you’d like to make offers on if you can’t cut a deal.
If you do get into contract on a short sale and find yourself in monthslong limbo awaiting an answer from the sellers’ bank, consider continuing to look at other properties. And perhaps even make an offer on one if you like it and its price just as much, and it is a nondistressed sale or a foreclosed home, both of which you can expect to get an answer from relatively quickly, in most cases.