What home sellers need to know about mortgages
Cash-only offers and high-priced bids might seem tempting, but there are other factors you need to consider when selling your home.
© Eric Audras/Getty Images
Home sellers who receive an abundance of offers might be tempted to grab the highest price and call it a deal. But that might not be the smartest way to choose the best offer of the bunch.
A better approach is to consider a variety of factors, including the buyer's ability to pay cash or obtain a home loan, according to Kris Berg, co-owner and broker at San Diego Castles Realty, a real-estate brokerage company in San Diego. (Bing: Are there far more buyers than homes to buy?)
"One of the first things we address is how strong the buyers are financially and how confident we feel that they're able to close," she says.
An all-cash offer always merits consideration because a failure to obtain financing is "the most prominent reason" why transactions fail to close, Berg says. In some cases, the buyer is unable to qualify for a mortgage.
In others, the appraiser's opinion of the property's value falls short of the purchase price, causing the lender to quash the financing due to a so-called low appraisal. With a cash offer, no lender is involved, so both risks are eliminated.
Article continues below
A cash offer isn't a guarantee, however. And there's another downside for the seller: Most cash offers come from investors looking to "fix and flip" houses they buy at a discount, says Bert Carpenter, senior loan officer at Nova Home Loans in Chandler, Ariz. These investors don't plan to occupy these houses for the long term, if at all.
Given cash buyers' expectations that they will get discounts, Carpenter says, sellers must weigh the risks of cash offers.
"You can take the all-cash offer," he says, "and it's a safe bet that you will get your cash at the end of the day. But you're only going to get X dollars. If you do your homework and pick a good, comfortable, reliable buyer who is looking for financing, you might make X-plus dollars. But the question is: How safe is that bet?"
- On our blog, 'Listed': Experts predict 5.4% home-price hike in 2013
The answer is where pre-qualification letters, or "prequals," come into the analysis. Prequals are written by lenders to inform sellers that would-be buyers are qualified to obtain financing. But Carpenter says not all prequals are equal, so sellers — or their agents — need to do some legwork to assess which prequals are credible.
"My advice to a seller would be to take a look at the qualifications of the individual who wrote that letter," Carpenter suggests.
While loan officers shouldn't disclose the buyer's personal information to the seller's agent, that agent can call the loan officer and engage in a conversation about the buyer's strengths, Carpenter adds. One question might be whether the buyer could be characterized as "qualified," "well-qualified" or "barely qualified." (Bing: What's the difference between preapproval and prequalification?)
Steven Ornellas, a real-estate agent at Steven Anthony Realty in Fremont, Calif., suggests that the seeds of this investigation can be planted even before the offers are received. The seller's agent can insist on a thorough preapproval and an understanding of the buyer's true financial capability.
Some sellers automatically give the cold shoulder to buyers who want to get FHA or VA loans. FHA loans are insured by the Federal Housing Administration, and VA loans are guaranteed by the Department of Veterans Affairs. Both government agencies require sellers to pay to fix certain defects.
Ornellas says he sees the motivation to avoid such costs from the seller's perspective, yet he also says he thinks FHA loans don't deserve the stigma.
"Sellers might say they don't want FHA, but there's no reason for that," Ornellas says. "It's a case of not knowing what the facts are."
One fact is that most states require sellers to disclose and, in some cases, repair known property hazards regardless of the buyer's financing.
Berg mentions another twist, which is that VA loans require the seller to pay in full certain closing costs that might otherwise be shared with the buyer. Those costs can add up, again prompting sellers to kick VA loan offers to the curb.
"My husband is a veteran," Berg says, "and this breaks my heart … it's all about the money."
Naturally, there's a bit of self-interest in all advice of this type. Real estate pros say some agents push for cash offers to improve their chances of a commission and some loan officers tout a buyer's financial prowess to increase their odds of a paycheck. Either way, sellers should have the final say and the opportunity to choose the offer they prefer.
Also the opposite effect occurs in areas where economy and employment are weak, namely prices are too low in this case. It's rigged and fixed like so many things in government and private sector. It is often not a free market but a manipulated market. Capitalism with a level playing field does not exist.
Te president in question was Clinton. He forced banks to make loans wih out risk. if you make so many bad loans to offset the loans that will have a return(profit). Oprah, everyone gets a home, you get a home, you get a home...etc....
And then, which is what Romney taught us - declare bankruptcy and walk away!
The conservative life - $$$ at your feet for nothing!!
Not sure what your point is here.
Businesses as well as individuals have a need to make money. It is not a want, it is a need.
Those of us who have real property have risked our own capital to aquire it.
Those of us who have back stock investments, risked our own capital to aquire it.
That is what is known as the how to handle and manage your money.
When individuals get greedy, that can be problematic.
Stay away from the greed and you will be just fine.
Making money is not a sin. Rather it is a God blessed quality.
Reenact Glass Stegal so that banks can no longer invest your savings in the stock market. Why would they give a loan on a house for 3% interest when they can 16% to 20% by putting it in stocks? Of course if they lose your money that is just too bad. Personal mortgages are at the all time record lowest in American history while Corporations are getting mortgages at all time record levels ( to rent out for 3 times what a mortgage payment would be, our children will never see the "American dream of house ownership"). Glass Stegal was repealed in 1999 and in just 9 years we went into a depression, of which we are not coming out of. This law kept banksters at bay for over 60 years and was one of the tools which brought us out of the last great depression. Call your senator/congressman, if you even know who they are (bet you know the name of your local NFL quarterback though). Cypress was about the banks using depositors money to bail out the bank if it fails. These banks failed because they made risky investments with depositors money and bankrupt the bank. So in english: now your bank deposits are treated like it is stock, if the bank fails you lose your money. And the feds are trying to figure out what to do with FDIC insurance since it is no longer valid. This is all in the Dodd Frank bill which passed earlier this year. If the stock market fails you lose your 401K and your life's savings. The only money you will be able to get your hands on is in your pocket. I hope this wakes up someone.