A bidding war occurs when multiple buyers are interested in the same house and make increasingly larger offers to try to win it. This drives up the final sale price of the home, sometimes well above the asking price. Bidding wars are most common in hot real estate markets like San Francisco and San Diego, but they can happen anywhere.
It may seem like the only way to win a bidding war is to put in the highest offer. However, there are other ways buyers can make their offers more attractive to sellers, including getting a fully approved mortgage.
3 key benefits of a fully approved mortgage
A pre-approval from OVM gives you a concrete number of the loan amount you’ll be approved for. To get preapproved, you’ll complete your application and work with your Loan Officer to submit detailed financial information including pay stubs, tax returns, and bank statements. Your Loan Officer will also check your credit. This gives you the confidence of knowing exactly what you can borrow, and having a fully approved mortgage shows sellers that you’re a qualified buyer, which makes your offer more likely to be accepted.
Now, let’s take a closer look at three potential benefits of getting fully approved before placing your bid on a house.
1. Shows you’re serious
Backing up your offer with a fully approved mortgage shows sellers that you’re a serious, prepared buyer. It gives them confidence that you’re as motivated to buy the home as they are to sell it — and that you won’t get cold feet at the last minute.
2. Instills confidence
Home loans fall through fairly often, and this is a major concern for sellers. In 2018, around 10% of mortgage applications were denied. If you qualify for a fully approved loan, your offer will be attractive to sellers because it’s secure. Since you’ve already been through the mortgage underwriting process, your loan is far less likely to fall through at the last minute.
3. Speeds up the process
It can take around a week to complete the underwriting process – possibly longer if there are any obstacles. This prevents most buyers from doing a quick close. With a fully approved loan, however, you can offer sellers a ready-to-close offer and get straight to the escrow process, presenting an advantage over buyers who still need to go through the underwriting process.
Other tips for winning a bidding war on a house
If you live in an area with a competitive real estate market and want to boost your chances of securing your dream home ever further, talk over the following strategies with your real estate agent.
1. Use an escalation clause in your offer
Adding an escalation clause into your offer allows you to outbid other buyers by a certain amount of money automatically. You can also specify a final sale price that you won’t go over so you don’t end up offering more than you can afford if the bidding war really heats up. This is a great way to show sellers how serious you are and how much you want the home.
2. Write a personal letter about why you want the home
If your offer comes close to another bidder’s, writing a compelling letter to the seller could be enough to push yours over the edge. Many sellers still feel an attachment to their home and want to see it sold to someone who will take pride in it. If you write a letter explaining why you want to live there — to raise your kids or be closer to family, for example — it may tilt the scales in your favor.
3. Waive the financing contingency
Another way to make your offer more attractive to the seller is to consider waiving your financing contingency, especially if you have a fully approved mortgage. Your financing contingency allows you to walk away from the sale without consequences if your mortgage doesn’t get approved.
If you’re already fully approved for a loan, there’s very little risk on your end and the chance of a big reward: your dream home.
Land the home of your dreams
When buying in a competitive real estate market, you can still win bidding wars even if you don’t have the deepest pockets. A great first step is getting a fully approved mortgage upfront.
OVM is always here to help guide you through the process. Give us a call or start your application today!