CLOSING COSTS AND FINANCING INCENTIVES
OTHER FINANCING DETAILS IN YOUR OFFER
FHA AND VA – EXTRA COSTS FOR THE SELLER
FHA AND VA NON ALLOWABLE FEES
VA AND FHA APPRAISALS
Most buyers do not have the funds to buy a home, so they have to get a mortgage to purchase the home. Since it will likely be contingent on getting that mortgage, the seller needs to know your financing plans so they can see if they are reasonable. This is why it is important to include the financing details in your offer.
In part of the offer, you will need to state the amount of your down payment. This helps the seller evaluate the reality of you getting the mortgage and needs to be realistic.
It also protects you to include the details, if interest rates become unstable and rise drastically, it would dramatically affect your mortgage payment, by placing a maximum interest rate in the offer, you protecting yourself from this and your earnest money is not at risk if you need to cancel the transaction. This must be done within the financing contingency timeline you place in your offer, which is typically 20 to 25 days. This does need to allow for some flexibility in the financing terms, if the interest rate is 5.5% and you say that is the highest you will accept, you would be able to cancel the contract without penalty if interest rates increased past that point during your financing timeline.
Closing Costs and Financing Incentives
Sometimes a buyer may ask the seller to pay all or a portion of their closing costs in their offer or maybe some other financial incentive. If you do ask for incentives like these, you will likely find that the seller is less negotiable on price because what you are actually asking is to have the seller to give you some money to help you buy their house. This works for buyers that are just short of the funds required to get into a home.
If you are fortunate enough to be able to purchase a house with cash, expect to provide documentation of proof that you have the funds to do so with your offer. A bank statement would be fine or a stock statement that discloses the timeline it will take to convert it to cash.
Other Financing Details in Your Offer
Other details that are important to place in your offer is whether you are getting a fixed rate or adjustable rate on your mortgage, as well as, if you are getting conventional financing or obtaining an VA or FHA loan.
Extra Costs to the Seller
If you are getting a VA or FHA loan to finance your purchase, it is important that you state that in your offer. The reason being, is because government loans have additional costs and duties on the seller.
VA and FHA loans actually disallow buyers from paying certain types of costs that are often charged by lenders and title companies. They call them "non-allowables". They get charged anyway, but the buyer is "not allowed" to pay them, this means the seller ends up paying them. Most of them come from your lender, and by the time you are ready to make an offer you should have already pre-qualified with a loan officer, this way you or your real estate agent can ask how much those non-allowable fees will be. Since these are not fees the seller would pay on an offer with conventional financing, it is important to include this information in your offer. You should also expect that since the seller will be paying these added fees, they may not be as negotiable on the price.
VA and FHA Appraisals
Home appraisals on FHA and VA loans are also more detailed than on conventional loans and often more expensive. The appraisers are asked not only to evaluate the market value of the property but to perform minimum inspections as well. Even though this is asked these inspections are not as detailed as a professional home inspection and you should not consider them as a substitute even though sometimes based on this the lender requires repairs before approving your loan. These are also additional costs the seller would not have to pay for someone getting conventional financing, so your offer needs to include a maximum number for any of these lender required repairs.