There’s some positive news in the real estate industry, as buyers have waived contingencies and appraisal to boost home sales in the country. Those waiving these contingencies are people paying cash or using regular financing.
Homebuyers Waives 28% Appraisal
According to NAR Realtors® index survey of 3,300 in May, 2021, homebuyers waived 28% appraisal contingency and 25% inspection contingency. Only 22% of homebuyers refused to waive contingency.
Regular financing doesn’t include FHA loans. These loans, according to Research Economist for NAR Gay Cororaton is impossible for loan financiers to waive contingencies because of certain guidelines. These guidelines require that home appliances such as smoke detectors work at full capacity. If these aren’t working, it would be somewhat difficult for homebuyers with FHA loan to waive the inspection contingency.
Cororaton noted that the time to undertake inspection contingency is a huge detriment to buyers, especially for first-time buyers and homebuyers who want FHA and VA-backed loans. Currently, the housing market is red-hot and sales transactions are increasing daily.
The Share of Mortgages Increases
The share of mortgages also increased, as records showed that more homebuyers competed against each other to close a home. For example, 20% down payment increased from 40% in May 2011 to 52%, according to NAR.
Buyers who opt for conventional financing are at a more competitive advantage than other buyers who opt for FHA or VA-backed loans. However, buyers with FHA or VA-backed loans are also offered low down payment financing, which makes conventional financing more beneficial.
Conventional financing mortgages increased from 65% in May, 2018 to about 74% within the same period in 2021. However, FHA-backed loans went down 14% in May from 20% recorded in the past years. VA-insured loans also witnessed a downturn of 7% in May, from 10% recorded in past years. We can attribute this downturn of FHA and VA-backed loans to the pandemic that hit the real estate industry, although records have it that VA loans receive low inspection contingency, making it challenging for buyers to purchase homes.
For example, VA loans inspection take approximately between 5-15 days to finalize, which is a long time compared to other lenders. In a market that’s competitive, it’s challenging for FHA and VA buyers to compete with other buyers bidding for the same house. The length of time is a detriment, and this will reduce the number of homebuyers opting to use the loans, as evident in the data provided by Realtors®.
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Published by Eric Lawrence Frazier MBA.