Make a Fair Offer
How to Make a Fair Offer
Like marriage, home-buying is one part love, one part legal transaction, and starts with a proposal. When you’re ready to buy a home, making an offer is important: oral promises are not legally enforceable in real estate sales.
REALTORS® usually have a variety of standard forms (including Residential Purchase Agreements) kept up to date with the changing laws.
In many states, sellers must comply with certain disclosure, and a REALTOR® will ensure that they do, as well as answer any questions you may have during the sale.
If you are not working with a REALTOR®, keep in mind that your purchase offer or contract must conform to state and local laws. State laws vary, and certain provisions may be required in your area.
Besides addressing legal requirements, making an offer should specify price and all other terms and conditions of the purchase. For example, if the sellers said they’d help with $2,000 toward your closing costs, include that in your written proposal and in the final contract—or you won’t have grounds for collecting it later.
After the offer is drawn up and signed, it will usually be presented to the seller by your real estate agent, by the seller’s agent, or often by the two together.
In a few areas, sales contracts are typically drawn up by the parties’ lawyers.
What to include when making an offer
Your purchase offer, if accepted as it stands, will become a binding sales contract—also known as a purchase agreement, an earnest money agreement or a deposit receipt. It’s important, therefore, the offer contain every element needed to serve as a blueprint for the final sale. These purchase offers should include the following:
- Address and sometimes a legal description of the property
- Sale price
- Terms—for example, this is an all-cash transaction, or the deal is subject to you obtaining a mortgage for a given amount.
- Seller’s promise to provide clear title (ownership)
- Target date for closing (the actual sale)
- Amount of earnest money deposit accompanying the offer—whether it’s a check, cash or a promissory note—and how the earnest money will be returned to you if the offer is rejected (or kept as damages if you back out of the deal for no good reason)
- Method by which real estate taxes, rents, fuel, water bills and utilities are to be adjusted (prorated) between buyer and seller
- Provisions about who will pay for title insurance, survey, termite inspections and the like
Type of deed that will be granted - Other requirements specific to your state, which might include a chance for attorney review of the contract, disclosure of specific environmental hazards or other state-specific clauses
- A provision the buyer may make a last-minute walk-through inspection of the property just before the closing
- A time limit (preferably short) after which the offer will expire
- Contingencies (these are extremely important matter and discussed in detail below)
Contingencies
If your proposal says, “This offer is contingent upon (or subject to) a certain event”, you’re saying you will go through with the purchase only if that event occurs. The following are two common contingencies contained in a purchase offer:
Financing. You, the buyer, must be able to get specific financing from a lending institution. If you can’t secure the loan, you will not be bound by the contract.
Home inspection. The property must get a satisfactory report by a home inspector “within 10 days after acceptance of the offer” (for example). The seller must wait 10 days to see if the inspector submits a report that satisfies you. If not, the contract would become void. Again, make sure all inspection conditions are detailed in the written contract.
Negotiating the price
Is the listed price the right price? A REALTOR® can give you a Comparative Market Analysis (CMA) of the home’s value, or you can check local listings on realtor.com® to see what similar properties sold for. Based on the home inspection, you might also ask for a lower price or repair contingencies if the home needs fixes.
You’re in a strong bargaining position—meaning you look particularly welcome to a seller—if the following conditions apply to your situation:
- You are an all-cash buyer;
- You have been pre-approved for a mortgage;
- You don’t have a house that must be sold before you can afford to buy.
In those circumstances, you may be able to negotiate discounts from the listed price. On the other hand, in a hot seller’s market, if the perfect house comes on the market, you may want to offer the full list price (or more) to beat out other early offers.
It’s very helpful to find out why the house is being sold and whether the seller is under pressure. Keep these considerations in mind:
- Every month a vacant house remains unsold represents considerable expense for the seller.
- If the sellers are divorcing, they may just want out quickly.
- Estate sales often yield a bargain in return for a prompt deal.
- Earnest money
Earnest money is a deposit you put down with your offer on a house. A seller is understandably suspicious of a written offer not accompanied by a cash deposit to show good faith. A REALTOR® or an attorney usually holds the deposit. The amount varies from community to community, and it becomes part of your down payment.
Buyers: The seller’s response to your offer
You will have a binding contract if the seller, upon receiving your written offer, signs an acceptance just as it stands, unconditionally. The offer becomes a firm contract as soon as you are notified of acceptance. If the offer is rejected, that’s that. The seller cannot change their mind later and hold you to the deal.
If the seller likes everything except the sale price—or the proposed closing date or the basement pool table you want left with the property—you may receive a written counteroffer with the seller’s preferred changes.
You can accept or reject it or to even make your own counteroffer—for example, “We accept the counteroffer with the higher price, except we still insist on having the pool table.”
Each time either party makes any change in the terms, the other side is free to accept or reject the offer or counter again. The document becomes a binding contract only when one party finally signs an unconditional acceptance of the other side’s proposal.
Buyers: Withdrawing an offer
Can you take back an offer?
In most cases the answer is yes, right up until the moment it is accepted—and in some cases even if you haven’t yet been notified of acceptance.
If you want to revoke your offer, be sure to do so only after consulting a lawyer who is experienced in real estate matters. You don’t want to lose your earnest money deposit or get sued for damages the seller may have suffered by relying on your actions.
Sellers: Calculating net proceeds
When an offer comes in, a seller can accept it exactly as it stands, refuse it (seldom a useful response), or make a counteroffer with the changes they want.
In evaluating a purchase offer, sellers estimate the amount of cash they’ll walk away with when the transaction is complete. For example, when they’re presented with two offers at once, they may discover they are better off accepting the one with the lower sale price if the other asks them to pay points to the buyer’s lending institution.
Once a seller has a specific proposal, calculating net proceeds becomes simple. From the proposed purchase price, they subtract the following:
- Payoff amount on present mortgage
- Any other liens (equity loan, judgments)
- Broker’s commission
- Legal costs of selling (attorney, escrow agent)
- Transfer taxes
- Unpaid property taxes and water bills
- If required by the contract: cost of survey, termite inspection, buyer’s closing costs, repairs, etc.
- The seller’s mortgage lender may maintain an escrow account into which they deposit money to pay property tax bills and home owner’s insurance premiums. In that case, remember sellers will receive a refund of money left in that account, which will add to their proceeds.
Sellers: Counteroffers
When sellers receive a purchase offer from a would-be buyer, remember that unless they accept it exactly as it stands, unconditionally, the buyer will be free to walk away. Any change the proposed buyer makes in a counteroffer puts the seller at risk of losing that chance to sell.
Who pays for what items is often determined by local custom. Sellers can, however, arrive at any agreement they and the buyers want about who pays for the following:
- Termite inspection
- Survey
- Buyer’s closing costs
- Points to the buyer’s lender
Buyer’s broker - Repairs required by the lender
- Home protection policy
- Sellers may feel some of these costs are not their responsibility, but many buyers—particularly first-timers—are short of cash. Helping a buyer may be the best way to get a home sold.
Whether you’re buying or selling, make sure a REALTOR® and/or an attorney evaluate all terms in the offer and counteroffers.
As soon as both parties accept the written offer, you have a legal contract.
Original article Posted on Realtor.com
http://www.realtor.com/advice/the-basics-of-making-an-offer-on-a-house/
How to Get a Mortgage With Bad Credit
How to Get a Mortgage when you have Bad Credit
If you have a credit score that’s considered fair, poor or even bad, you may be assuming that qualifying for a mortgage with bad credit is out of the question. While that’s true for some would-be borrowers who need to improve their finances as well as their credit, there are some mortgage options for home buyers with less than perfect credit.
Your Credit Profile
Mortgage lenders rely heavily on your credit score to evaluate your qualifications for a home loan, because your score indicates how you have handled credit in the past—which serves as a predictor of your future repayment pattern. According to Credit.com, excellent credit gets a score of 750 or above; good credit, 700-749; fair, 650-699; poor, 600-649; and bad credit is a score under 600.
Rather than guess your credit profile, you need to request your free credit report and pay a small fee to get your credit score fromwww.annualcreditreport.com. Fix any errors and take steps to improve your score with improved financial behavior long before applying for a mortgage loan. A lender can help you determine which steps will boost your credit score fastest, but depending on your situation, it could take at least several months or even a year before you can push your score high enough to qualify for the lowest interest rates on a conventional loan.
Loans for Borrowers With Poor Credit
In the thick of the housing boom, borrowers were approved for home loans without providing documentation of their income and assets. Subprime lenders approved loans for borrowers with low credit scores, although they often charged higher interest rates to those borrowers. Since the housing crisis, the majority of subprime lenders went out of business, but depending on your circumstances, you may still qualify for a home loan.
The most commonly used loan product for borrowers with lower credit scores is the Federal Housing Administration’s loan program. The FHA insures lenders against potential default and requires a minimum credit score of 580 or above for a loan with a down payment of 3.5%. Most lenders, though, require a credit score of 620 or 640 and above to approve an FHA loan. In addition to your credit score, you will need to provide full documentation of your income and assets and meet the lender’s debt-to-income ratio, which is typically a maximum of 41-43% of your monthly gross income that goes toward the minimum payments on all of your revolving and installment debts.
The downside of FHA loans is they have higher mortgage insurance requirements than conventional loans. The mortgage insurance payments must be made for the entire life of the loan unless you make a larger down payment. However, FHA mortgage rates are comparable to conventional loans regardless of your credit score, so you won’t be stuck paying a higher-than-average mortgage rate.
Special Programs for Credit Challenges
The financial crisis and recession hurt a lot of consumers who lost their homes and jobs. If your bad credit is a result of a personal financial hardship rather than your own mismanagement, you may qualify for the FHA’s “Back to Work” program, which allows borrowers to qualify for a home loan more quickly after a period of unemployment or reduced income.
The only way to know with certainty about your ability to qualify for a mortgage is to meet with a lender who can go over your individual financial circumstances. There is no charge to consult a lender, so even if you are not ready yet to get a loan approval, you can still benefit from a lender’s advice about how to prepare for a loan application.
Article originally posted on Realtor.com
http://www.realtor.com/advice/how-to-get-a-mortgage-with-bad-credit