It's generally accepted that with the Federal Reserve no longer purchasing government assets as part of its stimulus program, mortgage interest rates - among other consumer borrowing costs - will begin to rise in 2015.
Fortunately, while prospective buyers looking to purchase a home may end up paying more in interest over the next few years, property value appreciation rates are expected to continue slowing, meaning overall affordability could be enhanced. That's may be especially true during the first half of 2015, before the Fed adjusts the key funds rate, as the average 30-year fixed-rate mortgage isn't expected to carry an interest tag exceeding 4.5 percent until the middle of the year. By historical standards, that still equates to favorable conditions for borrowers.
As a recent Zillow piece noted, in anticipation of the eventual adjustment from the central bank, all consumers should be placing a renewed emphasis on getting their finances and credit profiles in order. Whether as a New Year's resolution or as some sort of ongoing housecleaning, enhancing your standing as a reliable loan recipient should be a priority, no matter what sort of purchases or credit offers you hope to take on. Credit card offers, along with home and auto loans, may be strapped with higher interest rates, but savings accounts could prove more profitable at the same time. So, if a deposit account hasn't been generating the sort of returns you'd like to see thanks to the low-rate environment of the past five years, that could change. In other words, this could be the ideal time to step up your savings by capitalizing on the Fed's policy normalization and stockpiling for a down payment on a new home.
Bettering your bidding odds
With mortgage interest rates rising and home price gains easing, competition figures to remain fierce for affordably priced homes in markets with tight inventory. In these situations, bidding wars can frequently result. In that interest, Trulia's Robyn Woodman, an experienced real estate broker based in the Seattle area, recently offered tips for how to survive such a situation.
Unlike a few years ago, cash doesn't automatically consummate the majority of deals anymore. Woodman explained that, particularly when bidding on an older home, buyers can appeal to the seller's sense of nostalgia. A personalized letter detailing your plans for the home's future may make you a more appealing buyer - even if you're not the highest bidder - because many people like some of the character of their previous homes to be retained long after they move out.
"Even though the homeowner is moving on, [he or she] probably still has a sentimental attachment to the property - so promising to maintain the architectural heritage of a historic home, for example, could make you a more compelling buyer."
Clearly, this strategy is not applicable under all circumstances. In some cases, the seller may be allowing their real estate professional to handle the vast majority of their transaction details, meaning you can't realistically expect to pull on their heartstrings because you never really see them. But in situations where presenting yourself as a favorable deal partner becomes a little more personal, an assurance that the home will be left in good hands can go a long way.
In most cases, sellers don't wish to extend the process any longer than they need to. In that interest, even if the bidding has reached the ceiling for what you're willing to spend, you can sometimes close the gap by offering to trim the timeline. This will not only underscore your level of commitment as a buyer, but can also improve your odds by catering to a seller's sense of urgency - perhaps providing the leverage you need against a higher offer that's slower to develop. Any offer that eases the burden on the other party is one that will be considered, so taking some time to analyze the seller's potential pain points is in your best interest.
Woodman also noted earnest money - essentially cash shown upfront - still has its place when the bidding heats up. She recommended exceeding standard earnest money deposits for your local market, when possible, but as much as 100 percent. Sellers will notice, and your competitors may drop out of the bidding altogether.
"This tactic proved successful in an aggressive bidding war for a condo in the Fremont neighborhood of Seattle," Woodman explained. "I knew my client's offer was going to be a bit lower than the others, so I suggested we increase the standard earnest money deposit by $10,000 to show good faith. After all offers were presented, the listing agent called and said, 'Your offer was lower than the others, but the large earnest money deposit really appealed to the seller and we're accepting your offer.'"
The lesson, in the end, is to find the angle that best caters to the seller. Contrary to popular belief, in many bidding wars, that angle isn't always about making the highest overall offer.