After You Find A Home
several properties you will probably find one that you may
have an interest in making an home purchase offer. While there
may be some apprehension, your Realtor should be able to help
calm your nerves.
If you have taken
the right steps, such as working with the right Realtor and
getting pre-approved by the right Lender for your FHA loan, the only thing left
is getting an accepted home purchase offer and doing the proper
WRITING A HOME PURCHASE OFFER
Before or when you
are about to write an offer to purchase a home you should make
sure that both your Realtor and Lender talk about your offer.
If your Realtor does not know how your Lender structured your
FHA loan financing, it could end up costing your more or cause you to
have to renegotiate your purchase offer at the last minute.
One of the items
that is specific to FHA is that there are some charges that
are not allowed to be paid by the buyer. These are called
Generally in the purchase offer the seller is asked to pay for these
items. Your Realtor must know what these charges are in order
to ask the seller to pay them. If your seller does not pay
them, your Lender may pay them, but this may result in a
higher interest rate on your loan.
The other item
that the seller may pay is any of your other closing costs.
This could be such items as origination or discount points,
title charges, pre-paid items, or other closing costs. While
this is not required of the seller, having the seller pay some
of the buyer’s closing costs can reduce the buyer’s amount of
cash needed to close. This is a very effective strategy for
first time buyers who have very little cash to work with at
this time. If you are asking the seller to pay some of your
closing costs associated with your FHA loan, you are now becoming a terms buyer and will
probably pay slightly more for the home than a person with
cash for their closing costs. Sellers generally have a “bottom
line” net sales price and will not go below that number to pay
for buyers closing costs.
An example of this
would be a home that is listed for $100,000
has his own Closing Costs
Offer to seller: $97,000
Net to Seller: $97,000
Buyer who needs seller to pay
$2500 of his Closing Cost
Seller to pay
$2,500 of Buyers
Net to Seller:
In this example
the seller’s “bottom line net was $97,000. The seller will net
approximately same amount under either scenario. However, the
buyer in Example #2 will reduce his closing cost by
approximately $2,500. Since his purchase price is slightly
higher, the buyer will have a slightly higher mortgage payment
of approximately $18 per month. This can sometimes be a better
strategy for a Buyer that is tight on funds to close their
loan. Again this is why
your Realtor and Lender should work as a team in helping you
with your purchase.
Other than the
final home purchase offer price there are several other items that you
should review. The date of closing, time allowed for
inspections, review of any homeowners associations bylaws,
date of possession, amount of earnest money deposit, proration
of taxes and assessments, and a few others. Ask your Realtor
to give you a copy of a blank purchase contract so you can
review it prior to actually writing your offer. You want to be
familiar with the purchase contract prior to finding that perfect home.
One of the things about writing an offer that makes people
nervous is that they are not familiar with the contract and
things can seem overwhelming the day you find the “perfect
One of the other
forms that should be included with your offer is the
Amendatory Clause. While this should probably be used on
every transaction it is generally only found on FHA loans.
This form gives the buyer the right to cancel the offer if the
property does not appraise at least as much as the purchase
price. This seemingly unimportant document can save a buyer
thousands of dollars. Most contracts make no mention that the
property has to appraise for the purchase price. Without this
clause, the buyer would have to come up in cash any extra
amount need. The Lender will only lend off of the appraised
value or the purchase price, WHICHEVER IS LESS.
THE PURCHASE OFFER IS ACCEPTED
Once you and the
seller come to terms on an acceptable purchase offer, there are several
other steps that have to be taken prior to the closing.
The first order of
business is usually to order the
inspections you requested.
While generally the buyer pays for all inspections, everything
is negotiable when it comes to a purchase contract. In some
parts of the country the seller may customarily pay for a
termite or other reports. Be sure to discuss with your Realtor
who customarily pays for which reports. Some other reports may
be well and septic, radon, sexual predators, lead based paint
and a whole house inspection.
One of the most
import reports you should order, regardless of who pays for it
is a Whole House Inspection. While not required by FHA, this
report will give a buyer a good sense of the condition of the
property. Even if you think you know what is wrong with a
home, it is a good idea to have the inspection performed. For
one of the largest purchases people make, the few hundred
dollars spent upfront can help avoid purchasing a home with
very costly repairs. FHA requires the the buyer sign the
Your Protection: Get a Home Inspection" form no later than
the date you sign the purchase contract. Otherwise the
purchase contract will have to be re-executed by all parties.
As of December 20, 2004, HUD will now allow the form to be
incorporated in the standard state sales contracts. All
of the language must be in the contract or the buyer will have
to sign the stand alone form.
Be sure to see the
section on Home Inspections
inspections are complete, your lender will want you to have an
appraisal completed. Most lenders have the buyer pay for the
appraisal either directly to the appraiser or through money
collected upfront for the cost of your credit report and
appraisal. Many buyers may the mistake of thinking that the
appraisal is for their benefit. This is actually slightly
incorrect as though it is for the buyer’s loan; it is really
for the lenders benefit.
Just because a
buyer and seller agree on a purchase price, does not
necessarily mean that a property is worth that purchase price.
Sometimes a buyer unknowingly may have overpaid or the
property may not be insurable through FHA.
To learn more
about the appraisal processes look under