Selling Your Home? Knowing Financing Basics Can Help You Close the Deal
By Gina Ragusa Credit Unions Online
With the mortgage market heating up, home sellers have found themselves in new territory where multiple offers are being made.
Although the knee-jerk reaction would be to select the highest bidder and call it a day, real estate and mortgage professionals caution sellers against blindly accepting an offer based solely on price.
Knowing what's behind that bid may be the difference between closing the deal or getting half way through the process only to have to re-list the property because the contract fell apart.
Real estate broker Kris Berg told Fox News that clients are advised to examine the strength of the offer beyond price.
“One of the first things we address is how strong the buyers are financially and how confident we feel that they're able to close," she says.
Types of Borrowers
The type of offer, along with how finances are backed can help the seller select the best package.
All Cash Borrower
One of the most desired offers, a cash only deal negates the reasons why financed loans often fall apart. Although all cash means that you won’t have to deal with a loan approval, sellers should investigate the underlying reason behind the cash deal.
For example, many all cash offers come from investors looking to purchase a property for a low price, renovate the home and then flip it for more cash. The downside is that many of these bids are lower than asking price. The buyer feels that he or she can come in lower because the bid is considered to be a “sure thing.” Sellers should examine every possibility and offer, as there may be a financed deal on the table that is backed by strong lender support, which ultimately means more money in your pocket.
Sellers should always check for that prequalification letter from the buyer’s lender before entertaining a deal. A prequalification letter is drawn up by the buyer’s lender, informing the seller that the buyer is in the position to obtain financing.
Bert Carpenter, senior loan officer at Nova Home Loans told Fox News, "My advice to a seller would be to take a look at the qualifications of the individual who wrote that letter."
Although the letter should not include personal financial specifics about the buyer, it should open the door to allow the seller’s agent to contact the lender for a conversation. Make sure your agent finds out whether the buyer is “well qualified,” “qualified” or “barely qualified.” Having this information on hand can help the seller make a more informed decision about how to counter or whether to accept the deal.
FHA or VA-backed Borrowers
Unfortunately many sellers may put an FHA or VA-backed borrower at the bottom of the offer stack because of the perceived stigma that is carried with this kind of funding.
Why? FHA loans are backed by the Federal Housing Administration and VA loans are supported by the Department of Veteran Affairs. Both agencies require the seller to repair certain aspects of the property if discovered during the inspection before the deal can close.
"Sellers might say they don't want FHA, but there's no reason for that," Real estate broker, Steven Ornellas tells Fox News. "It's a case of not knowing what the facts are."
Although property repair and updating to code is part of agreeing to sell to someone with a VA or FHA-backed loan, most buyers will insist that repairs to hazardous home aspects be made regardless of the type of financing.
VA loans do require the seller to front certain closing costs that are typically made by the buyer. Because this can become expensive some sellers won’t entertain a VA loan.
Investigate the Lender
During the housing boom, bogus lenders popped up on every street corner, offering “liar loans” to anyone with a pulse. History showed that the strength of the lender is just as important as the credibility of the offer.
Before you shake hands and agree on a deal, learn about where your buyer is obtaining his or her financing. In the past five years, credit union mortgage financing has become a popular favorite because many do no offer sub-prime loans and work diligently to ensure that their borrowers can repay--even before the Consumer Financial Protection Bureau handed down new repayment rules.
Additionally, credit unions often offer highly competitive rates, typically lower than market value with lower closing costs. Being able to finance at a lower rate and low closing costs may put the buyer in a stronger position to afford the home.
Ready to buy a home or need a home equity loan to spruce up your abode before putting it on the market? Contact your local credit union to discuss home loan options.