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 Rates
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.
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 to 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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