Financing and Your Offer

Financing and Your Offer

In most cases, buyers don’t have the cash to buy a house, so they get a mortgage to finance. Since you will most likely make your purchase based on getting a mortgage, the seller has the right to know you plan on financing.

Down Payment

You will have to state the amount of your down payment in your offer. This helps the seller evaluate the likelihood of you being approved for a mortgage. The higher the down payment, the better chances of getting approved.

Interest Rates

Putting finance information in your offer is a way to protect yourself. If interest rates shoot up, you might be paying a higher payment than you wanted. By stating a maximum interest rate in the offer, you’re saving yourself from this happening.

However, the seller might not accept the offer based on this. If you state that the current rate (say, 6%) is the highest you can go, you can cancel the contract if rates increase. The seller would suffer because they lost potential offers and any future plan they based off the transaction.

Closing Costs and Incentives

As part of your offer, you can ask the seller to pay your closing costs or even provide funds to temporarily buy down your interest rate for the first year or so. These incentives can be really effective if you’re tight on money or trying to max out the qualifying ratio.

When you ask for these kinds of incentives, the seller may be more firm on the price since you are basically asking them to help buy their house. In the end, a little help in the beginning will allow you to pay more in the long run.

Seller Financing

Another request is to have the seller get a second mortgage to help ease your purchase of their home. This is when the seller doesn’t need all the profit from the sale to buy their next house. By combining the down payment and the second mortgage from the seller, you might be able to avoid paying mortgage insurance and save some money.

If such a “carry back” is part of your offer, you should include the term on paying the second mortgage. Remember that your first trust deed lender has to know this information so they can underwrite your loan. The shortest term of the second mortgage can be five years with the minimum payment being “interest only”.  Longer terms and payments that include principles are available as well.

Cash Offers

If you are one of the few people that can afford a cash offer, make sure to provide proof that you have the funds available; like a bank statement. If you have to liquidate stock, make sure to provide when you’ll be able to show proof of the cash.