Listings are few and competition is fierce, particularly in her $350,000 to $400,000 price range and in the popular Inner Loop neighborhoods where she wants to buy. She’s heard stories of first-time homebuyers getting outbid on properties time and time again, often losing out to buyers making all-cash offers.
To increase her chances in the bidding wars, Collazo is considering a new program that would allow her to forego a financing contingency in her contract and make an all-cash offer — a proposition that would make her bid more attractive to sellers. The program, called House X Lab, is first launching in Houston, and soon will expand into other markets across 11 states.
The program was formed by a unique partnership between the New York fintech company Ribbon, Austin-based real estate brokerage House X World, and the Georgia mortgage company HomeStar. They also are working with Houston businessman and philanthropist Jim “Mattress Mack” McIngvale.
First-time homebuyers shut out
Similar initiatives are underway across the country as first-time homebuyers lose ground to high prices, rising mortgage rates and well-heeled buyers and investors who can pay in cash. The percentage of homebuyers making all cash offers accounted for 25 percent of home sales in February, up 3 percentage points over in the past year, while the share of sales going to first-time homebuyers fell by 2 percentage points, to 29 percent, according to the National Association of Realtors. Historically first-time buyers accounted for up 40 percent of the market.
Generally, cash offers are more attractive to home sellers because they don’t have to worry about financing falling through prior to closing. But cash offers are usually out of reach for first-time homebuyers, disadvantaging them in bidding wars.
“First- time homebuyers are getting just beat up basically because they’ll find a house they can afford and they’ll put an offer in and there’s already five or more offers on the same house already,” said Lawrence Dean, senior vice president in Houston for Zonda, a housing data firm.
Innovative models
Programs to help first-time homebuyers compete with all-cash offers essentially act as insurance, allowing a buyer to waive a financing contingency in the contract. The expectation is buyers will get a mortgage, but the programs will come up with money if the financing falls through or gets delayed before closing. Buyers typically must be pre-approved for the loan to qualify for all-cash programs.
Doug Duncan, chief economist at Fannie Mae, said House X Lab is one of several new innovative models designed to give buyers a leg up. Ribbon, for example, provides the guarantee to turn a conventional offer into a cash offer for a 1 percent fee. </…….