|
How
Financing Details Affect Your Offer
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.
copyright 2006 by Terry
Light and RealEstate ABC |
