FINANCING KNOW HOW

Do you really understand your financing options in the current real estate market?

Buyers are feeling the pain of this sellers market. Not just emotionally, but financially. With the median single family home price skyrocketing over the last few months, many buyers are left asking, “why wasn’t my offer chosen?”

The rejection can be overwhelming, not just for the buyer, but for the Lender, and Realtor. Working as a team, your Realtor and Lender oftentimes discuss a buyer’s options when it comes to obtaining a mortgage.

Generally, there are three lending options:

1) FHA/VA - financing

2) CONVENTIONAL - financing

3) RI HOUSING (or MA) - financing

In the current real estate market, Cash is King. Yes, there are many buyers who have the cash to purchase. This is a no-brainer for a seller. If for example, the List price of the home is $400k, and the seller receives multiple offers, if the cash offer is $380k, and the financed offers are $400k, chances are, the seller will accept the lower cash offer. WHY?

Because there’s no waiting for a lender to provide the funds for that buyer to make the purchase. It’s that simple.

The next best thing to a cash offer is a Conventional financed loan. WHY?

Because with a conventional loan, oftentimes, the buyer has excellent credit, money for a down payment, and closing costs. It means if there is a bank appraisal and there’s an issue with a repair that needs to be done, a seller can provide a monetary credit to the buyer. A buyer with conventional financing is a very strong buyer.

Now, what does this mean if a buyer is told they have an FHA loan? It usually means they don’t necessarily have funds for closing costs, and will require the seller to contribute. For example: House is Listed at $400k. Buyer can go to $406k, but needs to ask the seller for a closing concession, or credit of $6k. The seller is now receiving $400k for his home. In this market, the seller is receiving multiple offers, thus perhaps receiving $410k+. So, essentially, the highest bidder wins.

It’s the same with a VA loan. This is for Veterans, who receive 100% financing, To many sellers, even though they fully support our Vets, the VA buyers are viewed as having “no skin in the game”. If a seller is waiting for the lender to provide 100% financing, and they have received multiple offers, chances are, a VA buyer will be overlooked. * A bank appraiser will require a seller to FIX all repair items, rather than allowing a credit, so this also means many sellers either don’t have the funds to make repairs, or they won’t have to if they accept an offer with other financing.

Let’s look at it this way: You are selling a bike on Facebook marketplace for $500. You receive several inquiries and

Buyer one says: “I’ll pay you $600 cash today and I’ll pick it up”.

Buyer two says: “I’ll pay $500, half in cash today, with the balance by check next week; inflate those tires, replace the seat, and I’ll pick it up tomorrow.”

Buyer three says: “I’ll pay you $420, but I’ll need you to wait for my check next month. Replace the tires, and handlebars, paint it red, and deliver it to me today".

Understanding the financing is going to be crucial in how your offer is perceived. As a buyer, you want to work with an experienced Realtor and Lender, to navigate your way through the current market. We are in unprecedented times, and it’s going to boil down to patience, determination, strategy, and perseverance.

Three things a buyer can do:

1) Keep your credit score up. Lower your debt

2) Look at homes within your budget. If you’re maxed out at $300k. Look for homes at $250k. If there are no homes in your price range, wait it out, look at other options- condo?

3) Save as much as you can for a down payment, earnest money deposit, closing costs. Can you earn more money? Can your spouse work? Work on your options. Stay focused on the goal.

I always say, where there’s a will, there’s a way. As your Realtor, I make it my mission to work alongside you to reach your goals. But, I ask that you do the same. Don’t give up if you lose out on a home. Something else will come along!

If you have questions about the homebuying or selling process, you can reach me at 401-378-3000.