Selling a home? Which offer will you accept?
When you put your home up for sale you’ll attract all types of offers. The most notable difference between these offers is normally financing, and how buyers intend to pay for their purchase. So what types of bids might you get? Which are the best choices for your situation?
FHA loans have become incredibly popular over the past few years. These are government backed loans, similar to VA and USDA loans. These loans are known for low down payments, and lower credit requirements. However, these loans are also prized by those simply desiring lower interest rate loans as well. The biggest challenge with FHA mortgage loans is the inspection and property approval requirements. Property condition requirements can be far more stringent on these loans. If your property isn’t in great shape this can be a real problem. Condominium projects also must be approved in order to be eligible. Many aren’t. In fact some counties don’t have any FHA approved condos.
When FHA offers are good: You are in an area with a high presence of lower credit scores.
When FHA offers are bad: Your property has major repair needs, or the project is not approved by FHA already.
Offers contingent on conventional loans, and with conventional loan pre-approvals may suggest stronger buyer-borrowers, but that isn’t always the case. Credit and down payment requirements on these loans have been dropping. In fact, they can now allow a lower down payment than FHA home loans. However, these loan programs are not as restrictive on property condition, and do not require projects and buildings to be ‘approved’. However, there will still be minimum requirements. The property will still need to be livable and free of structural issues. Condominiums will still need to complete a questionnaire to verify their financial stability.
When conventional offers are good: It is a good property, in a stable neighborhood.
When conventional offers are bad: There may be roof or foundation issues, major repairs, or the community has potential legal or financial issues.
Cash buyers can be very attractive to home sellers. A cash buyer typically needs less time to close. There is no uncertainty or wait and see gamble as to whether the mortgage lender will come through or not. They may or may not purchase the property as-is, in any condition. Of course in return for these perks cash buyers will typically expect a discount.
When cash offers are good: When you absolutely need to sell quickly.
When cash offers are bad: An offer like this may be less attractive if time is not an issue, and your priority is simply the highest price.
With mortgage lenders still being tough to work with more buyers are looking for owner financing deals. This is even true of well qualified buyers with good incomes and credit who just don’t want to pay extreme lender fees or deal with headaches at the bank. In this example we are specifically talking about seller held mortgages. These arrangements can be highly attractive for sellers. They can create ongoing streams of income, and great returns on capital. Again there is no guess work with conventional lenders. Any property repair issues can normally be negotiated, but don’t need to hold up a sale. This is a fast transaction. The downside is that you don’t get all your cash out immediately. It can also be tricky if you still owe money on the property yourself.
When owner financing offers are good: You need an expedited sale and top dollar, and planned to reinvest your capital anyway.
When owner financing offers are bad: You need all your money right now.
There are multiple ways to structure a rent to own deal. This is a type of owner financing, yet mainly differs in that the transaction starts as a lease, with the option to buy later on.
When rent to own offers are good: You want top dollar, an income stream, and don’t need a lump sum of cash now.
When rent to own offers are bad: You are unsure you can fulfill your agreement to sell later on.
The above are all common types of offers home sellers may receive in the current market. What’s right for you is really down to your individual circumstances, financial needs, and priorities. In addition to the above sellers should also weigh each offer on the whole picture, including; contingencies, terms, closing dates, price, and net proceeds.