The temptation to grab the top price and call it a deal is naturally strong. But price isn’t the only factor sellers should consider.
A multiple bidding bargain means that many home sellers can choose their preferred buyer’s auction.
The temptation to grab the top price and call it a deal is naturally strong. But price isn’t the only factor sellers should consider. Financing also affects sellers, because if something is wrong with the mortgage, the sale might not go through. From a seller’s perspective, here are the pros and cons of four types of home buying financing:
• Why money is king
Cash is so attractive that some sellers will take a slightly lower asking price from a buyer who doesn’t need a loan.
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“Sometimes a seller might choose a cash offer over financing because they want or need to close earlier and it would be a much faster transaction with fewer surprises,” says Mark Fleysher, Broker-Manager at Sellstate Deluxe Realty in Las Vegas.
• No evaluation to kill the deal
One of the reasons a cash sale is advantageous is that no appraisal is required. Lack of expertise can speed up the sale. And that eliminates the risk that the valuation will be lower than the agreed selling price.
“At the end of the day, that’s the problem a seller faces – they may have a great buyer whose financing is skyrocketing because the sale price exceeds appraised value,” says Rob McAllister, Mortgage Broker at West Seattle Mortgage. .
“The lender will only lend based on the value of the house according to the appraiser,” says Rebecca Marvel, real estate agent for Carrington Real Estate Services in Palmdale, California. “If the valuation is low, the seller has to take less or the buyer has to make up the difference.
• The offer must be
reasonable
Sometimes the seller’s idea of a reasonable cash discount is not as important as the cash buyer thinks.
Marvel remembers an investor who made a cash offer of $ 140,000 for a house listed at $ 217,000. “I told him, ‘They’re not going to take this. It’s crazy low, ”she said. “A lot of cash buyers will pay close to asking, like 95% or 90%.”
• Condominium
restrictions
Condos also create preferences for money, as in some cases money is the only way for a seller to transfer a condo.
“If there is too high a percentage of non-owners in a condo community or if there are rental restrictions, they could be cash only,” says Fleysher. “Or if an owner has too many units, it could be just cash.”
• Advantages and disadvantages of a classic loan
A conventional mortgage is a home loan that is neither insured nor guaranteed by a government agency. From a seller’s perspective, conventional financing is generally worse than cash and better than an FHA or VA loan. There are exceptions, so sellers should carefully consider rather than selecting a buyer’s offer solely on this basis.
• Necessary repairs are rare
One of the advantages of conventional financing is that repairs triggered by an appraisal are rare.
“With conventional financing, the appraisers don’t really take a close look at the house. If there is something obvious and unavoidable, they will note it in their assessment… but it’s a really rare event, ”says McAllister.
Buyers might still want sellers to fix issues detected by a home inspector.
• Moderately fast closing hours
Transactions with conventional financing can also be completed relatively quickly, but not as quickly as cash.
“If the seller is in a rush,” Marvel says, “the end result could be this conventional financing that can be closed in 21 days.”
• Conventional includes jumbo
On the other hand, conventional financing, like most other types of loans, is subject to loan limits.
“You can’t use a regular conventional loan to buy a $ 2 million house, so if someone comes to that seller and says, ‘We get conventional financing,’ that would be a jumbo loan,” Fleysher explains.
• Jumbo loan
A mortgage that is insured by the Federal Housing Administration. The minimum down payment (or owner’s equity in a refinance) is 3.5 percent.
As of 2016, a jumbo loan is defined as a mortgage over $ 417,000 in most areas and over $ 625,500 in more expensive areas.
• FHA loan
A mortgage that is insured by the Federal Housing Administration. The minimum down payment (or owner’s equity in a refinance) is 3.5 percent.
“An FHA or VA assessment can be a bit more difficult because the regulations are a bit different for these government guaranteed loans,” says Fleysher.
• VA Loan: Help the Veteran
Some sellers like VA loans, guaranteed by the US Department of Veterans Affairs, because they like the idea of helping military personnel, veterans, and other eligible VA buyers.
