As Home Prices Rise, Cash Homebuyers Move In

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As home prices rise, The Federal Savings Bank encourages first-time home buyers to get pre-approved for a mortgage to gain time and perspective in a market that has many cash buyers.

VA and FHA home loans at The Federal Savings Bank

The Federal Savings Bank

We strongly encourage first-time homebuyers to get pre-approved for a mortgage as soon as possible. It gives the applicant an important perspective.

While many homeowners are finally getting close to recouping the value of their homes as prices continue rising, The Federal Savings Bank is seeing some first-time home buyers are going extra mile to compete with cash buyers.

According to the S&P/Case-Shiller home price index, which measures prices compared to those seen in January 2000 and covers about half of all American homes, home prices rose 2.4 percent on a month-by-month comparison, nearly matching the highest record increase witnessed between April and March - an increase of 2.6 points. All 20 of the cities monitored by the index experienced increases monthly as well as annually.

The jump in the S&P/Case-Shiller index translates to a 12.2 percent hike in home prices in May when compared to the previous year. A rise that large has not been witnessed since March 2006.

"Typical home values have appreciated at roughly half this pace for the past several months, which is still very robust," said Svenja Gudell, senior economist at Zillow. She added that the compelling rise in home prices could be attributed to the low number of foreclosed homes for sale. However, Gudell believes that higher mortgage rates and an influx of new homes for sale should cool the housing market - even though home prices are still 25 percent below peak 2006 levels, The NYT reported.

"Over all, indications are that the economy is strengthening and may even gain some momentum in the months ahead," said Lynn Franco, an economist for the Conference Board.

Competition from cash buyers

U.S. News reported homebuyers in major metro markets such as New York City, Boston and San Francisco, homebuyers are increasingly having to compete with cash buyers. For instance, 25 percent of all single-family home sales and 40 percent of condo sales in April in Massachusetts were paid for without a mortgage, according to data from the Warren Group.

In order to win attention from a seller, many homebuyers are looking to score points by getting pre-approved for a mortgage before they go house shopping. "We strongly encourage first-time homebuyers to get pre-approved for a mortgage as soon as possible. It gives the applicant an important perspective," says Nick, a banker at The Federal Savings Bank. Cash buyers are often investors looking to score a deal, looking at higher-priced homes could cut out many of the cash buyers. However, some say showing lenders family photos or sending them a letter is enough to seal the deal.

Contact The Federal Savings Bank to discuss first-time home buyer programs and if you qualify for a low rate mortgage.

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