How Financing Details Affect Your
Offer
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Interest Rates
A 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.
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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.
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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.
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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.
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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.
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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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