|
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
Rate
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.
Asking for
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 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.
|
Printable pdf
Goddin Real Estate