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MLO Training e-Learning: How To Negotiate a Home Before Signing Contract
People who want to purchase a house will go through the homebuying and mortgage process. Every lender may have their own homebuying and mortgage process system. However, what I will cover on this sub-forum on How To Negotiate a Home Purchase Prior To Signing a Home Purchase Contract is a comprehensive step by step process where the buyer is protected and avoid stress and a last-minute cancellation of the home purchase due to one or more issues that could have been avoided.
Factors and Variables That Impact Negotiation of Home Purchase
If you do not have a real estate agent to represent you by the time you are pre-approved, I advise to interview several realtors. Loan officers, attorneys, family, friends, and business associates often can refer you to a real estate agent who they had a pleasant and rewarding experience with. You can also check online and reputable websites like Zillow, Realtor.com, Redfin, online communities, and social media platforms. Do your due diligence. Check their online customer reviews, years of experience, and definitely make sure the realtor is a full time experienced agent who is from the area you intend to look for a home.
The method the buyer’s realtor advise you on negotiating a home purchase is dependent on the housing market. Is it a buyer’s market or sellers market? How is the housing inventory vs demand? What is the market time of an average home? Are you going to encounter many other potential buyers where it may lead to a bidding war? In a competitive market, homebuyers often face stiff competition where multiple buyers enter offers above the list price. We can cover more on this topic in this sub-forum and other sub-forums of GCA Forums e-Learning MLO Training Bootcamp.
Once a pre-approval letter is obtained, assist both the borrower and the realtor during the negotiation of the offer. The following is a step-by-step guide for the home-buying process.
Key Elements of the Negotiation ProcessContingencies
Contingencies allow buyers to cancel the purchase agreement without penalty if specified conditions are not satisfied.
Financing Contingency:
- If the buyer’s loan is not approved, the agreement may be canceled.
- This contingency typically addresses loan details and establishes a time frame.
Inspection Contingency:
- Buyers are generally allotted 7 to 14 days to inspect the property.
- If issues are identified, they may request repairs or a price reduction.
Appraisal Contingency:
- If the appraised value of the home is less than the agreed-upon price, buyers may renegotiate the terms or withdraw from the agreement.
Title Contingency:
- This provision ensures that the property’s title is clear and free of liens or disputes.
Sale Contingency:
- Applicable when the buyer must sell their current home before purchasing; such offers are typically less competitive.
Seller Concessions:
- Concessions are instances in which the seller agrees to cover specific costs or fulfill certain contractual terms.
Maximum Seller Concession Allowed Per Loan Program:
- HUD allows up to 6% seller concessions towards closing costs on FHA Loans.
- The Department of Veterans Affairs allows up to 4% seller concessions towards closing costs on VA Loans.
- USDA Loans allows up to 6% seller concessions towards closing costs on USDA Loans.
- Fannie Mae and Freddie Mac allows up to 6% seller concessions on primary owner-occupant homes and second homes and up to 2% seller concessions on investment properties.
- Seller concessions on Non-QM Loans, Jumbo Loans, and Portfolio loans depends on the individual mortgage lender (Some lenders allow 2% while others allow up to 6%).
Homebuyers can use seller concessions to cover closing costs and pre-paids. However, closing costs cannot be used for down payment on a home purchase. Overages on closing costs cannot be paid to borrowers. Overages of closing costs goes bsck to the home seller. In the event of overages of seller concessions, loan officers will use it towards buying the rate. If the borrower gets seller concessions for closing costs but falls short, the lender can offer lender credit to pay the shortage of closing costs. Below are informative guides on this subject matter. If you have any questions, please reply on the comment section below this post:
- Lender Credit and Seller Concessions: https://gustancho.com/lender-credit-and-sellers-concessions/
- Interest Rate Buy Downs: https://gustancho.com/interest-rate-buydowns/
- VA Guidelines on Seller Concessions: https://gustancho.com/va-guidelines-on-seller-concessions/
- Steps To Buying a House During a Bullish Sellers Market: https://gustancho.com/steps-to-buying-your-first-home/
Closing Costs:
- Sellers may contribute 2 to 6% of the purchase price toward the buyer’s closing costs, and occasionally more.
- Sellers can also pay points to reduce the buyer’s interest rate, either for the duration of the loan or for a specified period, utilizing options such as a 2-1 or 3-2-1 buydown.
Home Warranty:
- The seller may provide a one-year home warranty that covers major systems.
- Alternatively, rather than completing repairs, the seller may credit the estimated repair costs on the closing statement.
Earnest Money:This deposit typically ranges from 1 to 3% of the sale price, although the amount may vary based on the property.When Earnest Money is Refundable:
- Set clear rules for refunds, usually if contingencies are not met.
- After contingencies are waived, the money is no longer refundable.
Who Holds the Money:
- Decide who will hold the earnest money.
- Deal Terms: If the transaction does not proceed, ensure that the refund conditions for the earnest money are clearly defined.
- Earnest money is clear.
Strategic Approaches to NegotiationMarket Knowledge:
- Determine a fair sales price by analyzing recent transactions, prevailing market trends, and comparable property values.
Offer Terms:
- In addition to price, evaluate other terms that may be attractive to the seller, such as the closing date or proposed contingencies.
Protections vs. Offers:
- In a competitive market, it is important to balance the appeal of the offer with adequate buyer protections.
- When multiple buyers are expected, develop a clear negotiation strategy.
- Review each negotiation point, its impact on lending, implications for affordability, and its significance prior to finalizing the offer.
Maximum Seller Concession Allowed Per Loan Program:
- HUD allows up to 6% seller concessions towards closing costs on FHA Loans.
- The Department of Veterans Affairs allows up to 4% seller concessions towards closing costs on VA Loans.
- USDA Loans allows up to 6% seller concessions towards closing costs on USDA Loans.
- Fannie Mae and Freddie Mac allows up to 6% seller concessions on primary owner-occupant homes and second homes and up to 2% seller concessions on investment properties.
- Seller concessions on Non-QM Loans, Jumbo Loans, and Portfolio loans depends on the individual mortgage lender (Some lenders allow 2% while others allow up to 6%).
Homebuyers can use seller concessions to cover closing costs and pre-paids. However, closing costs cannot be used for down payment on a home purchase. Overages on closing costs cannot be paid to borrowers. Overages of closing costs goes bsck to the home seller. In the event of overages of seller concessions, loan officers will use it towards buying the rate. If the borrower gets seller concessions for closing costs but falls short, the lender can offer lender credit to pay the shortage of closing costs. Below are informative guides on this subject matter. If you have any questions, please reply on the comment section below this post:
- Lender Credit and Seller Concessions: https://gustancho.com/lender-credit-and-sellers-concessions/
- Interest Rate Buy Downs: https://gustancho.com/interest-rate-buydowns/
- VA Guidelines on Seller Concessions: https://gustancho.com/va-guidelines-on-seller-concessions/
- Steps To Buying a House During a Bullish Sellers Market: https://gustancho.com/steps-to-buying-your-first-home/
Closing Costs:
- Sellers may contribute 2 to 6% of the purchase price toward the buyer’s closing costs, and occasionally more.
- Sellers can also pay points to reduce the buyer’s interest rate, either for the duration of the loan or for a specified period, utilizing options such as a 2-1 or 3-2-1 buydown.
Home Warranty:
- The seller may provide a one-year home warranty that covers major systems.
- Alternatively, rather than completing repairs, the seller may credit the estimated repair costs on the closing statement.
Earnest Money:This deposit typically ranges from 1 to 3% of the sale price, although the amount may vary based on the property.When Earnest Money is Refundable:
- Set clear rules for refunds, usually if contingencies are not met.
- After contingencies are waived, the money is no longer refundable.
Who Holds the Money:
- Decide who will hold the earnest money.
- Deal Terms: If the transaction does not proceed, ensure that the refund conditions for the earnest money are clearly defined.
- Earnest money is clear.
Strategic Approaches to NegotiationMarket Knowledge:
- Determine a fair sales price by analyzing recent transactions, prevailing market trends, and comparable property values.
Offer Terms:
- In addition to price, evaluate other terms that may be attractive to the seller, such as the closing date or proposed contingencies.
Protections vs. Offers:
- In a competitive market, it is important to balance the appeal of the offer with adequate buyer protections.
- When multiple buyers are expected, develop a clear negotiation strategy.
- Review each negotiation point, its impact on lending, implications for affordability, and its significance prior to finalizing the offer.
https://gustancho.com/how-to-negotiate-a-home-purchase/
https://www.youtube.com/watch?v=PsvUnD3tuL0
gustancho.com
Lender Credit and Sellers Concessions For Closing Costs
Lender Credit and Sellers Concessions can be used for closing costs on but cannot be used for down payment on home purchase.
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