How Financing Details will Affect the Offer.|
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.
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.
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.
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.
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
copyright 2000 by Terry Light and RealEstate ABC