We are seeing a number of Pre-Approved buyers who placed offers losing out to competition. Here are the some of the tactics that buyers and agents were considering when placing an offer.
1) Conventional Loans are more appealing than FHA ► This is not the case. The house is either in good shape or it is not, and sellers are more concerned with the cash needed to close.
2) Large down payments must be an advantage ► This may be percived to be true, but a 20% down payment from a buyer only offering to put $100 up for the Earnest Money Deposit (EMD) smells funny to me.
3) Pre-Approval detailing they can qualify for more than the offer price ► This also is not advantageous considering it only takes about 5 minutes to get a pre-approval letter from a loan officer.
Offer price is the most important piece to the seller and listing agent. The buyer’s credibility and seriousness can be clearly stated by the EMD they put up with the offer.
For example, let us look at two offers on a home.
1) $180,000 offer with a conventional loan, 5% down payment and $1,000 EMD.
2) $180,000 offer with a FHA loan, 3.5% down payment and $6000 EMD.Offer 2 indicates a much more serious buyer with the higher EMD and cash needed to close will be less of a concern.
We’d love to hear your thoughts on this so PLEASE comment below!
Posts tagged CLOSING COSTS
Larger EMD = Offer Accepted!
Gift funds
Gift funds are often used to off-set the down payment or closing costs when purchasing a home. Here are the basic guidelines that need to be followed for all loan programs:
- Funds must come from immediate family member
- If last name differs, you must prove relationship via birth certificate or marriage license
- A gift letter has to be completed
- You have to prove donor had gift money availiable in account via canceled check or bank statement showing the gift clearing the donor’s account
- You need to show gift funds being deposited into your personal account and show the new balance after deposit
Cash to close
We believe that all clients need to fully understand what it takes to close on their home loan. Yet the “Cash to Close” has consistently provided confusion in all borrowers’ minds.
There are 3 main components that make out your cash to close:
(Say we have a $150,000 purchase price, putting 10% down).
- Down Payment – $15,000 (Can range from 3% to 20% down or more)
- Closing Costs – $2,500 (Usually between $2,200-$3,000)
- Prepaid Items – $4,613
- TOTAL – $22,113
Prepaid items are certainly the most confusing, and can be divided up into 4 categories:
- Escrow Account: Lender will establish an account to pay your property taxes and home owners insurance ONLY IF you put less than 20% down.
- Property Tax Pro-rations: In Southeast Michigan, property taxes are paid 1 year in advance, so you must reimburse seller for taxes already paid. *Required regardless of down payment amount
- Home Owners Insurance: 1st year policy is always paid in advance and paid 2 weeks before closing. *Required regardless of down payment amount
- Prepaid Interest: You are required to pay for the interest on the remaining days left in the month you close.
In our example, the $4,613 can be broken down into:
- Escrow – 7 months worth of property taxes and 2 months worth of home owners insurance for a total of $1,900
- Tax Pro-Rations – 6 months worth of taxes totals $1,500
- Home Insurance – Premium would be $900 per year
- Prepaid Interest – Say we close on the 15th of the month, you would have to pay the remaining 15 days worth of interest at closing, a total of $313.
Keep in mind the tax pro-rations usually are the most confusing, and some lenders will not include this as it is not a lender related amount. Hope this clears things up.
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