For more than a year, Lexi Betances, 29, has scrolled on her phone nearly every night, hunting for the perfect house. Since June, she’s ratcheted up her pursuit, and has rushed to see more than 30 homes before they got snatched up.
Her father is a real estate broker, so she is armed with more know-how than the typical buyer.
But that still wasn’t enough when she placed an offer on a house in the Forest Hills neighborhood in northern Tampa late last month. She offered $6,000 more than the asking price, doubled her escrow deposit, opted to pay for some of the sellers' taxes, shortened her closing time and included a letter from her lender as well as a personal appeal with a photo of her with her son, her agent said.
But the seller received more than 20 other offers and went with someone else, Betances said, because she’s using a Federal Housing Administration loan, which is designed for first-time or lower-income buyers.
“I knew not to get my hopes up,” she said. “Their listing agent pretty much told my agent they eliminated all other offers besides cash and conventional (loans).”
In the months since the pandemic caused a springtime slowdown in the real estate market, it’s boomeranged back with ferocity. Pent-up demand, rock bottom interest rates and record low inventory of homes for sale has combined to make the current market ultra-competitive, where it’s not uncommon for multiple offers to flood in, auction style.
This environment has made it extra tough for buyers using Federal Housing Administration and Veterans Administration loans to break through, because sellers are often more hesitant to choose them, especially when they have a buffet of other options.
Both types of loans require less or no money down, and are often perceived by sellers as being riskier and involving more bureaucratic red tape.
“It’s sad to see folks (get passed over) who ... a lot of them are great, it just comes down to a money factor, how much they’ve saved up,” said Michael Thompson, Betances' Realtor, who works for Keller Williams, noting that in order to compete, some buyers with government-backed loans are giving more concessions to sellers than their cash or conventional counterparts. “Inevitably, having more competition creates more high-pressure stakes for FHA and VA buyers.”
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The current market conditions have been created by a confluence of factors, only some of which are related to the coronavirus.
In the pandemic-related category: the rock-bottom interest rates, caused by emergency actions taken by the Fed to aid America’s flailing economy. Additionally, the surge in demand in the past summer months is seen as the result of many people holding out during the spring.
But those two aspects alone only explain why demand has increased. At the same time, supply has shrunk because of a shortage of inventory long in the making.
Len Keifer, deputy chief economist at Freddie Mac, said the dearth of homes on the market stems from the slowdown of new construction that was spurred by the Great Recession and never fully recovered.
“We’re not building enough housing to match the population growth,” he said, “We’re several million housing units too few and we’re falling further behind.”
That nationwide shortfall, combined with millennials entering the market as they reach peak home-buying age, means that the market is tight and prices are climbing perhaps faster than they would otherwise, Keifer said.
“The number of homes for sale is very low and it’s incredibly low for the price-point for first-time buyers,” he added.
The result? Homes listed on the market are selling fast — In July, 97 out of every 100 homes listed in Pinellas County were sold, according to the Pinellas Realtor Organization. That number is usually around 40. In Pasco, there were more sales in July than there were new listings.
“To me, that’s a crisis,” said Thompson, the Realtor, adding that he spends hours each day trying to convince on-the-fence sellers to list their homes. “We’re getting this influx of out-of-state residents and we have nowhere to essentially put them.”
Federal Housing Administration loans require less money down than conventional loans as a way to enable lower-income or first-time buyers to purchase homes, and those loans are insured by the government. Veterans Administration loans don’t require any down payment as a benefit for military service, and are similarly guaranteed by the government. Both do have additional safeguards, such as a requirement that the seller make certain types of repairs in order for the sale to close.
But Thompson said that with the right contract, the seller will barely notice any added hurdles.
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Candice Wilson, a chief warrant officer 2 in the Army who works at MacDill Air Force Base, said it was hard not to take it personally at first when she was turned down on a house because of her Veterans Administration loan.
She, her husband and their four daughters had been renting in New Tampa when, around May, they decided it was time to buy and take advantage of the low interest rates. They found one house that was on the same street where they lived, but the seller was only accepting conventional loans, she said.
“It felt offensive, but I didn’t know ... there’s this perception that there’s more red tape,” Wilson said.
But in late July, the family closed on a lakeside house, still in the same community, with four bedrooms, four bathrooms, a pool and a dock. Wilson, who is originally from Arkansas, said the view of the water reminds her of home.
“I never imagined getting a dream home on the first go,” she said. “Usually, you think your first home will be a starter home but we were able to get exactly what we wanted.”
Chris Birk, vice president of mortgage insight and director of education at Veterans United Home Loans, the nation’s largest Veterans Administration loan company, said that buyers who use the program have actually had the lowest foreclosure rate for the past 11 years. He added that the process has been made much more efficient than it used to be, and 2020 has seen more veteran loans than any other year in its 76-year history.
“At the outset, (for a seller) to only be open to conventional offers has always been head-scratcher for me,” he said. “These are people who want to plant roots in your community and have earned a job benefit. It seems the least you can do is let them compete.”
Data backs up the idea that sellers' fears about the risk of buyers with government-backed loans may be overstated.
According to the July 2020 purchase loan numbers from Ellie Mae, a software company that processes mortgages, about 78 percent of Federal Housing Administration loans closed within 90 days and 79 percent of Veterans Administration loans hit that benchmark — just below the about 80 percent of conventional loans. They typically took two to five days longer to close.
For Betances, the buyer using the Federal Housing Administration loan, the hunt for a 3-bedroom, 2-bathroom home with a backyard for around $250,000 continues. Her goal is to close on a home before the end of the year, and she’s optimistic she’ll meet it.
Even though she’s confident her job at a Tampa events company is secure, she said the lower down payment of the Federal Housing Administration loan will help her keep a precautionary savings cushion.
“I’m ready to have some roots and decorate how I want to decorate, and have traditions I haven’t been able to have in other houses I’ve rented," she said. "I want my young son to have a room he can be settled in.”
Until she finds that, she’ll keep constantly checking for new listings on her phone.
“Anything can happen,” she said. “There weren’t a lot of listings this week, but next week it could be double.”