Now is the perfect time to put your home on market and find a suitable buyer. The process of selling a home can be versatile, however, and the speed of which you sell it depends partially on how you handle the buyer’s financing. You can benefit by accepting a variety of financing types from your buyers because it will increase the number of prospects. The sale will be less challenging for you, and it may end up closing in a few weeks as opposed to a few months. The following are some of the financing options that you should consider and information on how they can benefit you and the buyer.
Conventional loans are loans that come from institutions such as traditional banks, credit unions, and mortgage brokers. The government does not back these loans, so professionals often refer to them as non-GSE or not government entity loans. They are some of the most popular loan types that exist and with good reason.
Conventional loans are the most beneficial to you next to a straight-up cash offer. You can have a high certainty that the deal will close when the buyer is using a conventional loan to finance the purchase. Part of the reason is that conventional lenders require 10 percent to 20 percent down from the buyer. Therefore, you know your buyer is serious if that person puts up that kind of money.
Conventional loans offer some benefits to buyers, as well. Some of them offer the buyers great interest rates. The benefit to you of accepting this type of financing from your buyer is that it has the least number of headaches and is the most straightforward process of them all. You get the money from your home from lender straightaway with only minimal pre-closing processes. Other types of funding have more red tape procedures that you’ll have to go through before you can close the deal and receive your funds. The conventional loan is the best product to accept if you’re trying to sell quickly and avoid a mess. However, you will need to accept other types of financing because restricting your acceptance can lower your chances of selling the home drastically.
The buyers who receive conventional mortgages have either a stable or stellar financial profile across the board. That means that they typically have a FICO score that is higher than 660, and they have a debt-to-income ratio that is 41 percent or lower. Such people can show two years of steady employment and two years of living at the same residence. Lenders are comfortable giving funds to these persons for a home purchase because they have a positive payment history on their records.
There are several types of conventional mortgage loans that buyers can receive, but you can classify them into two broad categories. The first category is called an amortized or fixed loan, and the other is an adjustable loan. The fixed loan payment is the same amount for the buyer every year. The adjustable loan changes after a three, five, or seven-year term at a fixed rate. Buyers usually apply for loan types that fit their personal financial situations. Many people prefer fixed loans because they have a fixed income or a steady income. They may feel more comfortable knowing exactly how much their mortgage is going to be so that they can develop accurate budgeting plans. People who have adjustable incomes may feel more comfortable with an adjustable mortgage. Individuals who plan on refinancing or selling their homes in a few years may have no problem with signing up with an adjustable mortgage.
Another type of funding that you should consider accepting is the VA loan. The VA stands for Veterans Affairs. The government guarantees the loans, which means that the Department of Veterans Affairs will cover the lender if the borrower defaults.
Military personnel and their spouses can qualify for a VA loan, and they are the only individuals who can qualify for the loan. However, they still must have an acceptable credit score and meet other criteria such as a debt-to-income ratio that is within reasonable limits.
The benefit that will come to you for accepting VA loans is that it will broaden your horizons in terms of possible buyers. There are more than 22 million living veterans in the United States, so there are hundreds if not thousands of veterans in your state. Denying buyers who want to use VA financing would not be a wise move if you’re looking for a fast close. VA loans have evolved over the years. Sellers used to be reluctant to take them because of the red tape and processes, but modern VA loans hardly involve the VA the way they used to. That means that closing and payment can come to you with the same speed as a conventional deal. In fact, some reports stated that VA loans closed 48 hours faster than conventional loans in some cases. If there is a concern with the VA loans, it should be about the costs that the buyer could ask you to cover like the closing costs. Veterans are exempt from paying certain expenses, which means that the costs could fall on you. However, you don’t necessarily have to cover the costs. The lender could cover those costs and so could the agent.
Just as a governmental entity backs VA loans, a governmental entity backs FHA loans, as well. The Federal Housing Authority insures the FHA loans, and it would be wise for you to accept this type of funding because many people will fall into this category. Typically, low-income individuals and persons with imperfect scores can qualify for FHA loans. Buyers must have a credit score of at least 500 points. They must also offer a down payment of at least 3.5 percent of the purchase price if their credit score is above the 580 mark. They will need to make a larger down payment if their score is lower than 580.
By accepting the funding, you give your home sale the opportunity to close quickly as opposed to restricting your acceptance to conventional loans. An area of concern is that your buyer may ask you to pay some fees such as the tax service fee. There used to be a long list of fees that FHA buyers could not pay, but that list was changed in 2012 so that sellers could find FHA buyers more attractive. There is a bit more red tape with this program than there is with conventional loans. The house will have to be up to par, meaning that an FHA appraiser must conduct an inspection and deem it free of health and safety hazards. If your home meets those criteria, you can surely sell it to an FHA buyer.
USDA loans come from the United States Department of Agriculture. They are specifically for people who want to live in rural areas. Therefore, you can add USDA loans to the types that you accept if your home is in a rural area. If you’re not sure whether it is or not, you can use the eligibility tool to find out. Just about every state has some area of land that’s classified as rural. People have so much of a misconception about what a rural area is that they often miss opportunities like qualifying for a USDA loan or offering their homes to USDA buyers. A quick visit to the website will answer all of your questions about whether or not your home is in a rural area.
Buyers who qualify for USDA loans have credit scores that are higher than 620 but preferably 640 or higher. Their income is either low or very low according to the guidelines. USDA loans are strictly for single units that the buyer will live in and not for any commercial property or farm property. The benefit that USDA loans have to buyers is that they can often get them without having to put money down on the home. The benefit to you is that it gives your sale more potential.
For your buyer’s USDA loan to go through, your home must be considered as safe, secure, and sound. Thus, it cannot have any major problems that would jeopardize the buyer’s safety once they occupy the home. If your home meets the criteria, then there is no reason that you should not accept USDA financing. Of course, a cash offer is always the best offer you can get, but many buyers are not able to make such an offer. The USDA loan may take longer to process than some of the other types of loans, but it can be a great asset to you if you’re not getting abundant purchase offers.
Another type of financing that you may want to consider offering to your prospects is seller financing. You can finance all or part of the loan, and you can increase the number of buyers like that. Many consumers are finding it difficult to secure traditional mortgage loans because of the stringent requirements of the lenders. A low credit score is often the reason that a conventional lender will turn down applicants. However, a low credit score does not automatically mean that your prospect can’t pay the loan. Traditional lenders don’t delve into the specifics of a person’s financial situation. They rely on numbers, whereas you can speak to the prospect and get a full first-hand summary of the person’s financial situation. You may find something that makes you feel confident about that person’s ability to pay you if you finance the home for them. Sometimes a simple explanation and some paperwork to back it up is all it takes, but traditional lenders won’t accept it because it’s outside of the realm of their impersonal and number-based understanding.
The main benefit to you for offering this type of financing is that you can sell your home faster. You can profit from the sale by charging a higher interest rate than a traditional lender may charge, as well. Furthermore, you can get more for the house by offering to finance your buyer. Taxes are another benefit of financing for your buyer. You can reduce significantly the amount of money that you pay on your gains.
The buyer gets several benefits from this course of action, as well. The buyer gets to save money on loan costs since you are playing the part of the lender. Additionally, the closing gets accelerated, and the individual gets to improve his or her credit score over time.
You can offer one of several types of seller financing depending on the situation. You can finance 100 percent of the sale or the difference between what a traditional mortgage company lends the buyer and what the home costs. Lease-to-own options may be a good fit for your situation, as well. What happens if you allow the buyer to lease the home for a certain amount of time, and you agree to sell the home to a person after that time. Some of the rent payments can go toward the home’s purchase.
Seller financing can be slightly riskier than the other methods are. However, a few precautions can help you to minimize your risk. One method is to ask for a large down payment. Another method is to keep the title until the loan is paid. Thirdly, you can conduct an extensive background check on the buyer and again talk with the buyer about his or her income, spending habits, backup plans, and so forth.
In a competitive real estate market such as this, you have to be versatile. You have to offer as many options as possible to increase the number of people who can obtain financing for your home and purchase it. Each process has its ups and downs, but trying to accept them all will be most helpful for your venture.
Call The Wright Choice Team today at 804-307-2589 to tour available homes for sale in the Chesterfield County area.