Buyer's Guide
Down Payment
Most buyers do not have enough cash available to buy a
home, so they need to obtain a mortgage to finance the
purchase. Since you will probably make your purchase
contingent upon obtaining a mortgage, the seller has the
right to be informed of your financing plans in order to
evaluate them. That is one of the major reasons that
financing details are included in your offer.
Down Payment
As part of your offer, you will need to disclose the
size of your down payment. Once again, this allows the
seller to evaluate your likelihood of obtaining a home
loan. It is easier to get approved for a mortgage when
you make a larger down payment. The underwriting
guidelines are less strict.
Interest Rates
Another reason for including financing information in
your offer is to protect yourself. If interest rates
suddenly become volatile and rise quickly, as sometimes
happens, you may looking at a mortgage payment much
higher than you anticipated. By putting a maximum
acceptable interest rate in the offer, you are
protecting yourself from such an occurrence.
At the same time, the seller will probably want to
see that you have some flexibility in the financing
terms you are willing to accept. If interest rates are
currently at eight percent and you indicate this is the
highest rate you will accept, you would be able to
cancel the contract without penalty if interest rates
rose past that point. The seller would suffer because
they have lost valuable marketing time and may have made
their own plans based on successfully closing the
transaction.
Closing Costs and Financing
Incentives
There may be times when, as part of your offer, you
request the seller to pay all or a portion of your
closing costs, or provide some other financial
incentive. One common request is asking the seller to
provide funds to temporarily buy down your interest rate
for the first year or two. Such incentives can be
especially effective if a buyer is tight on money or
pushing their qualifying ratios to the limit.
Whenever you ask for incentives such as these, you
will probably find the seller less willing to negotiate
on price. After all, what you are really asking for is
to have the seller to give you some money to help you
buy their house. The end result is that, for a little
relief in the beginning, you are willing to pay a little
more in the long run.
Seller Financing
Another occasional request is to have the seller "carry
back" a second mortgage to help facilitate your purchase
of their home. In cases when the seller does not need
all the proceeds from their sale in order to purchase
their next home, this is an option. The advantage to the
buyer is that by combining your down payment and the
second mortgage from the seller, you may be able to
avoid paying mortgage insurance and save yourself some
money.
If such a carry-back is part of your offer, you
should include the terms you wish to pay on such a
second mortgage. Keep in mind that your first trust deed
lender needs to know this information so they can
underwrite your loan, and they have certain minimum
requirements. The minimum term of the second mortgage
can be five years. The minimum payment can be "interest
only." Longer mortgage terms and payments that also
include principle are also acceptable.
Cash Offers
If you are one of those rare individuals making a cash
offer to buy a home, it makes sense to provide some
documentation with your offer that shows you have the
funds available. A bank statement would be fine. If you
have to liquidate stock or some other asset, your offer
should give a timetable on when you will provide proof
you have converted the asset to cash.
Other Financing Details in
Your Offer
Your offer should also contain information on whether
you are obtaining a fixed rate or an adjustable rate
mortgage. It should also state whether you are obtaining
conventional financing or obtaining a VA or FHA loan.
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RealEstate ABC. No articles may be reprinted or
displayed without permission.
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