A nationwide shortage of listings has created intense competition among buyers — many of whom will be submitting offers to purchase the same small pool of properties in a given community. It's commonplace for homebuyers to see their offers rejected a dozen times because someone else has put forth a stronger purchase package.
But amid such high competition, there are ways homebuyers can bring their offers to the front of the line — without having to waive critical contingencies, like the home inspection.
Here are a few ways buyers can make their offer stand out, according to homebuying experts:
Ditch the conventional and get a purchase-rehab loan
Homebuyers should consider buying a property that is slightly rundown, said Bruce Marks, CEO of the nonprofit Neighborhood Assistance Corporation of America. Instead of purchasing the property with a conventional loan, Marks said, homebuyers could get a purchase-rehab loan.
Purchase-rehab loans allow a buyer to borrow more money than the sale price of a house and use the additional funds to make repairs. They're also known as home improvement loans. Think of them as a cousin to the Federal Housing Administration's 203(k) loan.
Purchase-rehab loans were popular decades ago, but the number of lenders offering them now has dwindled, Marks said.
"It's not easy to administer because you have to go back and make sure the work is done, and that involves working with contractors," Marks said in an interview.
To be sure, a purchase-rehab loan, depending on which lender grants it, may require a homebuyer to complete additional paperwork at closing or choose from a preset list of companies to complete the repairs. Despite that additional work, Marks said, the purchase-rehab route effectively shrinks the competition for buyers because most house hunters are not willing to place offers on homes on the market that they consider blighted.
"You can get some good properties that need to be renovated, and you can customize them to your desires," he said. "There's less competition there, and investors tend to lowball those offers."
Beef up that earnest money deposit
Homebuyers looking to thin out the herd of other competitors should offer the seller more than the desired amount in their earnest money deposit, said Lee Davenport, a real estate strategy coach in Atlanta.
Also known as a "good faith deposit," earnest money is cash buyers give the seller to express how serious they are about purchasing the home. Real estate agents representing the buyer and seller often negotiate the exact amount of earnest money given, but it's customary for the figure to be between 1% and 3% of the home's price. For example, if 3% reflects a $5,000 deposit, the buyer could consider sending $6,500.
Doing that will often ward off other buyers because the additional money sends a strong message to the seller, Davenport said.
"It is payment for their time, and they can use that money to pay their mortgage that month or put a down payment on the home they're trying to buy," she said.
The move especially staves off institutional investors and all-cash buyers because those two groups are looking to purchase other properties as well and many times offer only $500 in earnest money, Davenport said.
Find down payment grants
Find out whether your city or town offers housing assistance grants, Marks said. Some cities have online applications and make it easy to apply, while others may require you to call the housing development department to inquire, he said.
The only issue with housing grants, Marks said, is that some of them offer relatively low amounts of money — say $10,000, but "in some cases, it's a significant amount."
Pleasanton, California, for example, offers $100,000 in down payment assistance.
In Georgia, qualified applicants can get $7,500 for down payment assistance, and in Iowa, they can be awarded a $2,500 grant for down payment and closing costs.
Milwaukee offers down payment assistance grants of $5,000 to $7,000 depending on where the property sits in the city.
Either way, securing a government grant is a double win for anyone just beginning their home purchase journey, Marks said.
"That puts you in a better position to get approved by a lender, and you can pay a higher price," he said. "You can outbid people."