| 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
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