How Financing Will Affect Your Purchase Offer
How Financing Will Affect Your Purchase Offer
Most buyers (and when I say most, I mean nearly ALL) do not possess the available cash to purchase a home outright, so they will need to get a mortgage to finance the cost. Because your purchase will depend upon your securing a mortgage, the seller will reserve the ability to be informed of your exact financing plans for evaluation. This is a reason that financing details will be included with your offer.
Down Payment
As a condition of your offer, you will be asked to indicate the size of down payment you will be making. This will aid the seller in determining your ability to secure a loan. It will be much easier to get a loan with a larger down payment, as the underwriting guidelines will be looser.
Interest Rate
Having your offer include your financing plans is also a good way to protect yourself. Interest rates can fluctuate, and if there was a sudden rise, you could be facing a substantially higher payment. You are allowed to put a maximum allowable rate into your offer, to protect you from this possibility.
By the same token, a seller will want to see signs that you are flexible in the terms you will accept. For example, if rates currently sit at 7 percent, and you have set that number as a maximum, then you would be able to opt out of the contract if the rates surpassed that amount. This would negatively affect the seller, as they would have lost out on crucial marketing time.
Financing and Closing Costs Incentives
Many buyers will often ask the seller to pay for part or all of the closing costs, or offer some other type of financial incentive. A typical request is asking the seller to offer funds to buy down your interest rate for the initial two years. These incentives are highly effective if money is tight, and you are already pushing your qualifying ratios.
If asking for these incentives, you might find the seller a bit less receptive to negotiating the asking price. After all, think about what you are asking. You are asking the seller to help you pay for their house. The result will be that you have to pay more in the end for that short-term help.
Cash Offer
If you are one of the select few who can afford to make a cash offer on a home, you should provide appropriate documentation with your offer that shows your ability to do so. A bank statement works just fine in that regard. If you will be liquidating assets to acquire the funds, you will need to provide a timetable for when those assets will be converted to available cash.
Other Offer Details
Your offer needs to provide details on the type of loan you are applying for (adjustable or fixed rate). It should also indicate whether it will be a traditional loan, or one obtained via an FHA or VA loan.
