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 2000 by Terry
Light and RealEstate ABC |
