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.
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About Blaine Morris, Marin Properties
As a top-producing licensed REALTOR with
Frank Howard Allen in Greenbrae, California, Blaine Morris
specializes in Central and Southern Marin County. Always just
a phone call or email away, Blaine works seven days a week
for his clients, providing them with the utmost in fast and
efficient service and follow through. Whether you are searching
for the home of your dreams, or thinking of selling it, Blaine
can turn your dreams into reality! Behind Blaine is the strength
and stability of the Central Marin office of Frank Howard
Allen, the #1 office of the #1 Brokerage in Marin County.
Contact him today at 415.925.3279 or
click here.
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