The clouds are darkening on the U.S. real estate front.
Mortgage applications fell 13.3% in the week ending Feb. 17, according to the Mortgage Bankers Association. That followed a 7.7% decline in mortgage applications the prior week, as home loans plummeted 18.1% in the same timeframe.
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Buyers may be seeing what recent homebuyers already know. Housing costs are rising so high that homeowners in two of five U.S. states are spending more than 30% of their income solely on housing costs, according to a new study from Today’sHomeowner.
In such an unfriendly consumer housing environment, mortgage lenders have read the room and are increasingly sweetening the pot to attract new homebuyers.
Take these new amenities offered by mortgage lenders these days:
The "buy now, refinance later" option. This option allows buyers to purchase a home with a higher interest rate and then refinance it at a lower rate later.
Seattle-based Flyhomes Mortgage and New York City-based Better Mortgage are among the firms offering consumers help with future refinancing plans.
The “one-day” mortgage. This service speeds up the mortgage approval process by relying on digital platforms and automated underwriting. Better Mortgage began offering its one-day mortgage program in January 2023.
Assumable mortgages. This service allows buyers to take over the seller's existing mortgage at the same interest rate, avoiding the need to secure a new loan.
While advantageous if you strike a deal with a seller, they’re not always easy to get, as realtors tend to shy away from them. FHA, VA, and some Fannie Mae and Freddie Mac adjustable-rate mortgages are eligible for assumable mortgage status.
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Amenities Are Intriguing But Keep Your Eyes Open
While it’s always good to see mortgage lenders focusing like a laser beam on potential homebuyers, consumers should continue to focus on the big picture, industry veterans say.
“The consumer mortgage lending business is influenced by various factors, including the state of the economy, interest rates, demand for housing, and government policies,” said Cignature Realty chief executive officer Lazer Sternhell. “In tough markets, mortgage lenders may use various strategies to attract buyers, including offering special promotions, competitive interest rates, and streamlined application processes."
As concerns over persistent rising inflation and interest rates continue unabated, the mortgage lending business is in a rising state of volatility, and home buyers should treat it lightly.
“It’s very difficult to predict the impact of these factors on the housing market and mortgage lending in the short term,” Sternhell said. “Right now, it’s important for buyers to do their research and compare different lenders and mortgage products to find the best option for their needs.”
That’s not to say new homebuyers are at a competitive disadvantage against sellers, as was the case in 2021 and 2022. This year, the tables have been tuned.
“In a market with rising interest rates and potentially lower demand, buyers may have more negotiating power, and sellers may be more willing to consider lower offers,” Sternhell said. “That’s especially the case with buyers who offer an all-cash deal and close quickly have a good advantage. In that event, sellers won’t be holding their breath on whether or not the mortgage will be approved, and may offer a price discount for all-cash buyers.”
Potential buyers should also be prepared to act quickly, as the housing market can be competitive and fast-moving.
“It’s always important to have financing in place, a strong offer, and to be flexible in terms of location and property features,” said My Tower CEO Pini Shemesh. “Ultimately, each buyer's approach will depend on their unique financial situation, housing goals, and personal preferences.”
The Takeaway on Creative Mortgage Offers
It’s unclear whether lenders' creative strategies are working, as it may take some time to gauge their effectiveness. In the meantime, real estate experts advise taking any new mortgage lending service offer with a grain of salt.
“Buyers who are interested in purchasing a home in the current market should be cautious and do their due diligence to ensure they are making a sound financial decision,” said August Wealth Management Group chief executive officer Sean K. August. “While interest rates remain high, buyers may still be able to negotiate a lower rate with their lender.”
Homebuyers can also consider exploring alternative financing options, such as FHA loans or VA loans, which may offer more favorable terms.
“Ultimately, the U.S. housing market is complex and dynamic, especially right now, and buyers should seek the advice of trusted lending professionals before making any major financial decisions,” August advised.
