Most buyers need to obtain a mortgage to finance a home purchase. Since you will likely make your purchase contingent upon obtaining a mortgage, the seller has the right to know of your financing plans in order to evaluate them. That is one important reason why financing details are included in your offer.
Down Payment
In your offer, you will need to list the size of your down payment. Again, this will inform the seller to evaluate your probability of obtaining a home loan. Underwriting guidelines are less strict when you make a larger down payment, therefore, making it easier to get approved for a mortgage.
Interest Rate
A second reason for including financing information in your offer is to protect yourself. If a sudden rise in interest rates develops, as sometimes happens, your mortgage payment may be much higher than you anticipated. By stating a maximum acceptable interest rate in the offer, you are protecting yourself from volatile rates.
In doing this, the seller most likely will want to see that you have some flexibility in the financing terms you are choosing to accept. For example, if interest rates are currently at eight percent and you indicate this is the highest rate you will accept, you may cancel the contract without penalty if interest rates exceeded that point. The seller would be disadvantaged for having lost valuable marketing time.
Asking for Closing Costs and Financing Incentives Sometimes, a buyer requests the seller to pay a portion, or even all of the closing costs. Asking the seller to assist funding a temporary buy down on your interest rate for the first year or two is a common request. This usually occurs if a buyer is tight on money or bordering their qualifying ratio limit.
Asking for these kinds of incentives will most likely keep the seller from negotiating on the price of the home. After all, you're asking the seller to give you money to help you buy their house.
Seller Financing
Sometimes, a seller may "carry back" a second mortgage to help facilitate your purchase of their home. If the seller does not need all the proceeds from the sale to purchase their next home, this may be an option. The buyer's advantage is that by combining your down payment and the seller's second mortgage, you may be able to save yourself some money by avoiding paying for mortgage insurance. If this type of carry-back is part of your offer, include the terms you wish to pay on the second mortgage. Remember, your first trust deed lender must know this information, so they can underwrite your loan. Certain minimum requirements may apply such as; the minimum term of the second mortgage can be five years; the minimum payment can be "interest only." Also acceptable can be longer mortgage terms and payments that include principle.
Cash Offer
If you are making a cash offer to buy a home, it is a good idea to provide some documentation with your offer to show you have available funds. A bank statement would be sufficient. However, if you need to liquidate stock or some other asset, your offer should include a timetable on when you will provide proof as to the conversion of asset to cash. Other Financing Details in Your Offer
Other information your offer should address is whether your interest rate will be a fixed or an adjustable rate mortgage. Also, list if you will be receiving conventional financing or obtaining a FHA or VA loan.