Real Estate Tips & Resources
How to Make an Offer on a Home: Step-By-Step
So let's say you've made the decision to buy a home and you're ready to get started with the process soon. Congrats! That's a huge first step. Now you want to know, "How do I make a successful offer on a house?" The process of writing an offer can seem confusing, especially if you're a first-time home buyer. But making the actual offer on a home is just one step of a larger process — a step that should be fairly straightforward if you've put all the other pieces into place ahead of time. 1. Understand your mortgage options Before you get to the part in the home-buying process where you're thinking of writing an offer, you should already have talked to a lender about your budget and mortgage options. Selecting the right mortgage lender and getting Cash Approved™ (vs merely prequalified) allows you to shop the housing market with confidence.There are many different types of home loans, and Denver-based Accept.inc makes it possible to upgrade most typical mortgage types into a cash offer! (Sellers prefer all-cash offers over offers based on simple pre-approvals -- so much so that a seller will often choose an all-cash offer over a higher bid. Taking advantage of this option could be the ace up your sleeve when it comes time to make an offer.) 2. Find a real estate agent If finding a real estate agent to help you navigate the home-buying process wasn't your first step before selecting a lender, then this should be your next action item. Can you get through the home-buying process without hiring a real estate agent? We don't advise it. Taking the time to choose the right real estate agent is actually the smart play. Because the fees for a buyer's agent come out of commissions paid by the seller, there's no extra cost to you to work with an agent. A savvy agent is not just there to help you find a house; they're there to strategize with you, negotiate on your behalf, and help you navigate (and avoid) any obstacles in your journey to becoming a homeowner. Hiring the right agent is critical not only to the process of making a winning offer, but getting you past the finish line of the settlement process. 3. Discuss how to make a strong offer Once you're ready to get serious, it's time to sit down with your agent and discuss your strategy for putting an offer on a house or condo. We recommend doing this before you find your dream home, because in a competitive market, it pays to move quickly. Don't wait until after you've found the home of your dreams to learn how the home-buying process works or what your budget is! Talk to your agent about: What you're willing to pay and how much you can go over askingWhat you can afford on a monthly basisHow much earnest money you're willing to put downWhich contingencies you are able and willing to waiveWhat your deal breakers areWhat things you're willing to compromise onWhether you're willing to negotiate or use an escalation clauseAny issues related to timingHow much cash you can bring to the table, either for a full cash offer or for a substantial down payment One of the first things you should know: price is not the only factor when it comes to a seller accepting your offer! Let's talk about what else can sway a seller (and the seller's agent who is advising them). Consider that sellers want assurances that you're a serious buyer. A higher earnest money deposit (EMD) is one way to show you're motivated (and in a good financial position). Dustin Pruitt, of EXP Realty in the Greater Portland Area, explains that a low EMD "communicates to the seller that the buyer is unwilling or unable to make the seller whole should they breach their contractual obligation." A stronger offer is one that (also) keeps contingencies to a minimum, because each contingency represents one more opportunity for the deal to fall through. We've talked before about how cash buyers don't have financing and appraisal contingencies, but there are other points — and other types of contingencies — to consider in your offer strategy. Even if you don't plan to waive the inspection contingency, what can you do to signal that you're a highly qualified and motivated buyer who is likely to seal the deal? Pruitt suggests cutting the inspection period down to half of the standard time in a highly competitive market: "A long or detailed additional inspection from a buyer indicates they are nervous about the house. The last thing a listing agent wants to do is tie up a house with a long inspection contingency only to have a buyer terminate." On top of that, consider limiting the types of inspection issues you'll consider a deal breaker. It'll give sellers more confidence in your offer if they know you'll only use the inspection contingency to terminate if the report reveals structural issues, for example. For the same reason, Pruitt strongly advises against writing offers that contain a home sale contingency — a clause that the sale can only move forward when the buyer's own home is sold first. As Pruitt explains, these types of offers "are riddled with risk for a seller. What if the home doesn't sell, or the sale falls through? It's much better to figure out a plan with your Realtor® to not be a contingent buyer." Besides cash and limiting contingencies, are there other ways to strengthen your offer? What about writing a personalized note to sellers to tug at their heart strings and clinch the deal? Although it used to be a common strategy to send a letter with personal details explaining why you deserve the house more, "real estate love letters" have fallen out of practice and the National Association of Realtors considers them to be a liability. So, instead of sending a heartfelt letter, let the strength of the offer speak for you. 4. Decide if you should make a bid Now that you've laid the groundwork and have identified one or more homes you're interested in, decide whether it's a good idea to submit an offer (and on which home). Hopefully you've already been spending a lot of time crunching numbers and understanding your budget, but it definitely won't hurt to verify again that your chosen home is in an appropriate price range for your budget and that you're comfortable with the monthly payments. Don't forget that your budget needs to include taxes, insurance, HOA fees, and other costs, not only the principal and interest payments! If this is your dream home, chances are it might be someone else's too. You'll want to have your agent find out how many competing offers there are and if you're competing against (other) cash offers. Next, have your real estate agent pull the sale prices of comparable homes (also known as "comps") from the past month or two. Is the list price in line with what the home is actually worth? If the list price is substantially lower than the comps, you can be sure the seller's agent is trying to generate high demand to spur a bidding war and the home is expected to sell for way above list price. These details will help you and your agent decide if it makes sense to submit an offer and what to include. 5. Draft your offer letter If you're ready to move forward, it's time to make an offer. And quickly! Don't worry about searching for "offer letter templates" in a search engine. Your agent will know what to do and work with you on the details. Typically, an offer letter will include: The address of the propertyThe price you're offeringAn escalation clause, if applicable, with details of how much you'll increase your bid in case of a bidding warThe earnest money deposit you're putting downWhether you're making a cash offer or, in the case of a financed offer, how much you have available for a down payment Contingencies (such as financing, appraisal, home inspection, or home sale) which must be met before the sale goes throughTarget date for closing the saleTerms for prorating utilities, real estate taxes, and other bills between buyer and sellerWho will pay for title insurance, inspections, and other necessitiesA termination date for when the offer expires There may be some additional details to include, depending on your specific circumstances (or the seller's). 6. Wait for a response from the seller Once your agent submits the offer letter, one of three things will happen: The seller accepts the offer (in which case, congratulations!)The seller rejects the offerThe seller make a counter-offer If your offer is rejected, that doesn't necessarily mean the end — you may be asked to come back with another, more appealing, offer if you have the means to do so ... or you can move on and look elsewhere for a new home. A counter-offer might entail a change in the price, fewer contingencies, or other adjustments to the offer. The choice is yours whether to accept the counter-offer or walk away. 7. Finalize the contract Once the seller accepts your offer, you will both sign the offer letter. You'll then produce the earnest money deposit and sign the sales contract. Depending on your offer, you'll likely arrange your home inspection as soon as possible at this point to clear your inspection contingency. Before you can take possession of the home, all the contingencies must be satisfied, including getting final approval of your home loan if you've chosen to go with a traditional mortgage. However, if you wrote a cash offer, you can skip the financing and appraisal contingencies. That's because with an Accept.inc Cash Approved offer, your financing is already secured and the Value Check guarantees you won't run into any issues with the appraisal, which clears two major hurdles that threaten traditionally underwritten loans. Once all the requirements of the contract are met, you'll sign the final paperwork and close on the house. It's time to break out the bubbly! Want to write a cash offer that's 4x more likely to win than an offer using traditional financing? Get in touch with us and get Cash Approved™ today.
Dan S | Mar 18, 2022
A Homebuyer’s Guide to How Escrow Works
Shopping the housing market for the first time? You’re embarking on a new and exciting life milestone! As with any big project or endeavor, the key to a successful home-buying experience all boils down to being equipped with the right information. From your very first property tour to the celebratory glass of champagne in your new home, there’s one word you’ll probably hear quite a bit: escrow. The good news? We’re here to demystify the term and provide the inside scoop on what an escrow account is and what to do with it. What does escrow mean? Escrow is a legal agreement, handled by a neutral third party, in which money or assets are temporarily held until certain conditions are met. Escrow accounts exist to protect all parties involved in a transaction. Escrow can be utilized for a variety of circumstances, including the sale of goods, mergers and acquisitions, real estate, and more. In real estate, escrow commonly refers to two different uses: To protect a buyer’s earnest money during the home sale process – ensuring the money is delivered to the seller per the terms of the purchase agreement.To hold funds used to pay for property taxes and insurance. As you navigate the home-buying process and step into homeownership, you’ll encounter two types of escrow accounts. One is specifically leveraged for the home sale, while the other will exist throughout the life of your loan. Escrow for purchasing a home You’ve submitted an offer on a house with a massive walk-in closet and screened-in porch – a place you’ve always dreamed of calling home. And you’ve just received word from your agent that the seller accepted your offer. It's time to jump for joy! Now that you’re engaged in a real estate transaction, escrow will be used to collect and hold your earnest money. Also known as a "good faith" deposit, earnest money accompanies your offer and communicates to the seller that you intend to follow through with the purchase of the home. But don’t fret, this amount isn’t an additional fee. Instead, it’ll later be applied as a credit towards your down payment at closing. And in exchange, the seller agrees to take their home off the market. Your earnest money deposit will be held safely in escrow until the deal closes and the funds are released. Home escrow can be managed by an escrow company, mortgage servicer, or an escrow agent. Escrow for taxes and insurance The escrow account used during the home-buying process only exists for a short period of time. Once the purchase is complete, and the keys to your new home are handed over, a new escrow account will be opened by your lender. Active through the life of your loan, this type of escrow account is used to hold funds the homeowner will need to pay for taxes and insurance. Your lender will pay for your homeowner’s insurance and property taxes on your behalf using the funds collected in escrow. The upside? Your mortgage lender will oversee these particular payments, ensuring they’re made on time. By taking this responsibility off your plate, it’ll keep you protected from having a lien placed against your home due to missed insurance payments or unpaid taxes. As an added bonus, that pile of monthly bills on your desk won’t grow any larger either! Be prepared to prepay escrow costs at closing. For instance, many mortgage lenders require borrowers to pay their entire annual homeowner’s insurance premium upfront for the first year. Similarly, you may be required to pay 6 months of property taxes upfront. That means, if your property taxes are $6,500 annually, you’ll be asked to pay $3,250 into your escrow account at closing (though this amount may be prorated). In subsequent years, coverage costs will likely be rolled into monthly payments to your lender. This is a separate cost from your regular monthly principal and interest payments. In some circumstances, you may be able to close your existing escrow account and pay taxes directly. Every lender has different terms and conditions that must be satisfied, such as amassing a certain percentage of equity in your home or making on-time payments within a specified time frame, in order to qualify for escrow removal. However, many homeowners prefer to have the account out of convenience. After all, it serves as a safety net, ensuring you don’t default on property taxes or forfeit your home to tax foreclosure. How much do escrow fees cost? Escrow fees, which make up a portion of your closing costs, are paid directly to the escrow company, title company, or real estate attorney conducting the closing. These fees cover everything from paperwork costs, like title transfers and recording the deed, to loan fees. On average, escrow fees typically cost 1% to 2% of the home’s purchase price. That means, if the home you’re interested in buying is listed for $350,000, your escrow fees may fall somewhere in the vicinity of $3,500 to $7,000. It’s important to note that escrow fees are ultimately determined by the home’s location, the title or escrow company you use, and the purchase price of the property. Your escrow account acts similarly to a savings account – ensuring you have the money needed to cover housing-related costs safely stored in one place. In addition to escrow fees, you'll be responsible for other closing costs (even if you're paying cash), so make sure to factor in these expenses when calculating your total spend. Who is responsible for paying escrow - the buyer or the seller? There is no industry standard for who is responsible for paying escrow fees. While buyers and sellers typically split costs associated with escrow fees, the party ultimately responsible for footing the bill can be negotiated. Your real estate agent will be your go-to resource for what you should ask for in a negotiation, providing valuable intel on crafting a winning strategy. For instance, you may decide to use findings from your inspection as a bargaining chip to ask the seller for concessions, such as covering escrow costs. What is an estimated escrow payment? Upon receiving your initial loan estimate, you’ll likely spot a section that’s labeled “projected payments.” This area is typically divvied up into three main categories: mortgage insurance, principal and interest, and estimated escrow. We know what you’re thinking: why does it say “estimated?” Determining how much money is needed to fund your escrow account each year isn’t an exact science. Mortgage lenders typically conduct an annual analysis to assess whether or not your escrow balance is sufficiently funded. The reason you’re given a ballpark figure for your monthly escrow payments is because the amount covers the cost of both your homeowner’s insurance and property taxes, both of which can fluctuate year over year. After completing the yearly analysis, if your lender determines there’s an escrow shortage due to an increase in your insurance premium or a new tax assessment, your monthly escrow payment will be bumped up to cover these additional costs. Because your escrow account is funded in advance, it provides your lender with a bit of wiggle room – allowing them to adequately cover extra monthly costs (if needed) before adjusting your escrow payments to match the actual costs. In a similar vein, if your lender’s escrow assessment finds there’s too much money in your account – often called an escrow overage or surplus – you may receive a refund check. According to federal regulations, there is a limit placed on the amount of escrow dollars your lender can collect. This includes, at maximum, enough funds to cover your annual property taxes and homeowners insurance, as well as a small “cushion” of two additional monthly mortgage payments. Putting it all together As a potential homebuyer, and future homeowner, you can expect to make escrow payments during the purchase process as well as throughout the lifespan of your loan. Not only does escrow act as a form of protection for both buyers and sellers during the sales transaction, but it also ensures crucial payments (like insurance and taxes) are made on time and in full through a separate account set up by your lender after closing. Even if you plan on submitting an all-cash offer, you’ll still be required to cover escrow fees. In fact, all-cash offers are subject to many of the same closing costs as buyers making a home purchase via the traditional mortgage route. At Accept.inc, we equip Colorado, Oregon, Washington and Arizona home buyers with the tools needed to navigate the home search and buying process with confidence. Browse our site to learn how to find the best mortgage lender, find tips for how to win a bidding war, and get a competitive advantage when taking steps to buy your next house with cash. Check out our home buyer resources for all the latest tips, tricks, and insights into buying a house in a competitive market. And when you're ready, contact us to get Cash Approved™.
Kelly K. | Mar 2, 2022
Types of Mortgage Loans
Whether you're a first-time homebuyer or you're starting the homebuying research process again after several years, you might find that there's a lot to know and do when it comes to financing. Before you even get as far as the mountain of paperwork and seemingly endless checklists of items required for the underwriting process, let's start by making sure you understand the different home loan options available to everyday home buyers. If you don't know where to start researching the best types of mortgages for a house or condo, don't get discouraged. While the sheer number of financing products on the market can be a little intimidating, having a lot of options is generally a good thing — it means you'll likely be able to find a home loan product that suits your needs. With that in mind, here's a rundown of the different mortgage types you might encounter as you’re doing your research on how to finance your next house purchase. Adjustable-Rate Mortgage Adjustable-rate mortgages (ARMs for short), also known as variable-rate mortgages (or tracker mortgages in the UK), are where the lender offers a "teaser rate" for a few years, after which the lender has the option of adjusting the rate based on current market conditions. The most common of these is called the "5/1 ARM," where the rate is fixed for the first five years, and then adjusted annually thereafter. (The first number is the number of years the initial rate is fixed and the second number is how frequently the rate may be changed. So a 7/1 ARM is fixed for seven years, and adjusted every year after that. But be aware: a 5/6 ARM has a fixed rate for 5 years and is adjusted every 6 months for the remaining 25 years! Be sure to read the fine print!) What's the advantage of an ARM? Adjustable-rate mortgages are often best suited for buyers who are confident they'll be able to sell or refinance the house within the initial fixed period. These buyers want to take advantage of the extremely low interest rate early on and don't intend to still be paying the loan once the rate rises. This can be risky if you're not able to sell the house or refinance (or pay the loan off in full) before the rate increases and you're suddenly stuck with a much higher monthly payment. Bridge Loans Bridge loans (also known as gap financing, interim financing, or swing loans) are short-term loans used to “bridge” a transitional period. In real estate, a bridge loan could be used if someone needs to finance a house before they sell an existing property they own, but are not able to secure long-term financing for the new home yet. Gap financing allows them to bridge the time between buying the new home and selling the old home, as an interim measure, until they are able to secure more favorable long-term financing. Bridge loans are usually secured by the buyer’s current home and are intended for short-term cash flow. They have relatively high interest rates compared to more traditional types of mortgages. Conforming Mortgage In order to be "conforming," a mortgage loan must meet certain criteria. The Federal Housing Finance Agency (FHFA), as well as Fannie Mae and Freddie Mac, set certain guidelines for home loans that they'll purchase and guarantee. Foremost of these criteria is the loan limit, which is currently $647,000 for single-unit homes in most of the United States (with exceptions for some high-cost areas). Home loans that meet these criteria are called conforming. All conforming mortgages are conventional, in that they're originated by a private lender and not any government agency. However, not all conventional mortgages qualify as conforming, as they may not meet those federal guidelines. A mortgage that exceeds the loan limit set in the federal guidelines is called a jumbo loan (see below). Conventional Mortgage Conventional loans are underwritten by private lenders, not by a government entity; however some conventional loans can still be guaranteed by Fannie Mae or Freddie Mac if they meet the criteria of a conforming loan. Jumbo mortgages are an example of conventional mortgages that do not meet Fannie Mae or Freddie Mac requirements and would therefore not qualify as conforming mortgages. They can have a fixed or variable interest rate. Conventional loans without a 20% down payment are subject to private mortgage insurance (PMI), but PMI can be removed once the home's loan-to-value (LTV) amount reaches a certain threshold. Loans that are directly backed by the government, such as FHA, VA, and USDA loans instead of private lenders are called non-conventional mortgages and have specific, niche requirements and are, therefore, not available to all homebuyers. FHA Mortgage FHA mortgages are an attractive option for buyers who don't qualify for the same loan amount using a conventional mortgage. Because FHA loan requirements aren't as strict, buyers who don't have great credit or have higher existing debt may find this to be a great option for getting into homeownership. These loans are backed and ensured by the Federal Housing Administration of the U.S. government and are available with standard fixed-rate or ARM terms, but FHA loans are generally for smaller amounts than most other typical mortgages. The minimum down payment for an FHA loan is as low as 3.5%. One commonly noted difference between FHA mortgages versus conventional mortgages is how mortgage insurance is handled. FHA loans with less than 20% down require an upfront Mortgage Insurance Premium (a one-time fee) and an ongoing mortgage insurance premium (MIP) similar to the PMI paid with a conventional loan, but you cannot cancel MIP when you hit a certain LTV. If your down payment was at least 10%, then you'll pay MIP for 11 years; if your down payment was less than that, you will pay MIP for the life of the loan. Fixed-Rate Mortgage Having a fixed-rate mortgage means your interest rate will not change over the course of your loan. Your rate is locked in and your monthly principal-plus-interest payments will stay the same every month, too. This makes it simple to manage your budget and understand the total cost of your mortgage over time. (But do keep in mind that other expenses like property taxes, insurance, maintenance, utilities, and escrow costs may change over the years.) The two most common periods for a fixed-rate mortgage are 15 years and 30 years – this just means that the loan is spread out over fifteen and thirty years, respectively – though different loan periods are also possible. 15-Year Fixed-Rate Mortgage A 15-year fixed-rate mortgage is less common than a 30-year fixed-rate mortgage because it requires the borrower to make higher monthly payments in order to pay the loan off quicker. The advantages of a shorter term are lower interest rates and a shorter period over which interest accrues, which leads you to pay a lot less overall while building equity more quickly. 30-Year Fixed-Rate Mortgage The most popular type of home loan in the United States is the 30-year fixed-rate mortgage – sometimes just called a "30-year fixed" or a "30-year mortgage." The longer term is attractive to first-time home buyers especially because stretching the repayment period over thirty years leads to lower monthly costs, which most borrowers prefer (or need). The disadvantage, compared to a 15-year fixed rate mortgage, is that a 30-year loan typically has slightly higher interest rates and the total sum of the interest over the entire term will be higher. Most people find this to be a good trade-off, especially in a low interest rate environment. Carryback Financing Carryback financing (also called seller carry back, owner will carry, or owner carry back) is where the seller provides financing directly to the buyer, instead of the buyer getting financing through a bank. The seller essentially extends credit to the buyer via a promissory note and the buyer makes payments in installments toward the agreed-upon purchase price. This can be advantageous to buyers who have difficulty securing a traditional mortgage (due to bad credit, for example). Although there is risk to the seller, there are some potential benefits to them as well. Since the property acts as collateral in the sale, the property reverts back to the seller if the buyer defaults. The seller receives ongoing income from the payments and can defer capital gains taxes on the sale of the property. It also avoids having to negotiate with a bank on the terms of the sale, since the seller will dictate those terms themselves. However, most ordinary sellers would prefer not to deal with the additional hassle of acting as a lender and dealing with the risks of potential foreclosure and would prefer to get all the proceeds of the home sale when they sell, instead. Construction Loan If your dream home doesn't exist yet and you're looking to build one that meets your exact requirements and specifications, you'll need a construction loan. This type of mortgage is a short-term loan that covers the cost of a house's construction. Once the house is built, you have to apply for a mortgage for the completed home. A construction loan comes in several flavors. A construction-only loan is a one-year, high-risk loan that only covers the construction period. A construction-to-permanent loan converts into a standard mortgage once construction is finished. Finally, an owner-builder loan is for borrowers who intend to be their own contractor and build the home themselves. Co-Op Loan A co-op mortgage is for buying into a type of cooperative housing project, which is co-owned by a group of otherwise unrelated inhabitants. While co-ops look similar to condos, their ownership structure is different. Rather than getting a deed to the unit, you purchase shares in the co-op, which grants you a lease of your specific unit. As an owner, you own common areas jointly and are partially responsible for maintenance fees. Co-op purchases require an extensive approval process, including approval by the relevant co-op board, possibly requiring interviews and character references. This type of homeownership model is popular in places like New York City, but is relatively uncommon in other parts of the United States. Delayed Financing Delayed financing is a type of financing where a new homeowner, who has already purchased a home with cash up front, quickly obtains a cash-out refinance (see above) to mortgage the property. This process effectively returns a good portion of the cash used by the buyer to purchase the property. This strategy lets potential buyers buy homes with cash (because sellers prefer receiving cash offers for houses) and then quickly replenish their liquidity. This financing generally requires the borrower to have quite a bit of capital on hand to buy the property in the first place. Learn more about the pros and cons of delayed financing for home purchases. HIRO Refinance The HIRO (High Loan-to-Value Refinance Option) program was created in 2018 by Fannie Mae, in the interest of helping homeowners who have Fannie Mae-owned loans to qualify for a refinance loan even if they have little or no home equity. A homeowner might fail to build equity due to falling house prices in their area or some other reason. The object of the HIRO loan is to let homeowners refinance without needing to meet the equity requirements of more traditional refinance loans. iLender/Power Buyer Mortgage An iLender is a technology-enabled lender that offers a quicker, more streamlined approach to home buying and selling, using the power of cash offers. Working with an iLender is perfect for home buyers who recognize the competitive advantage of making an all-cash offer on a house, but who either can't or wish not to pay for the entire house with their own cash. Using this type of mortgage product, the buyer gets approved by Accept.inc, or another iLender, for the full amount of the sales price and is able to make a cash offer to the seller using their proof of funds. The iLender purchases the home on behalf of the buyer with cash, then sells it back to the buyer under a mortgage. The buyer gets all the advantages of making a cash offer, without having to give up hundreds of thousands or millions of dollars in liquidity all at once. Interested in learning more about this innovative type of mortgage? Check out our guide on buying a house with cash. Interest-Only Mortgage With an interest-only mortgage, the required monthly payments only cover the interest that's accruing on the loan. The total principal balance doesn't decrease as long as the borrower is only making the required minimum payments. Interest-only loans are attractive to borrowers who don't expect to be in the house for long, but these are quite risky. These days, lenders will generally only offer interest-only loans to high-earning borrowers. Jumbo Mortgage A jumbo mortgage is an example of a non-conforming loan — one that exceeds the limits set by the Federal Housing Finance Agency (FHFA) for conforming loans, and so cannot be guaranteed by Fannie Mae or Freddie Mac. These mortgages are for higher loan values and require higher credit scores, high income, and larger amounts of cash on hand. They're generally for buying high-end properties or properties in high cost-of-living areas, and often have stricter requirements than other home loans. Non-Conventional Mortgage While most mortgages are originated and serviced by private lenders, some are administered directly by one of three government agencies: the Federal Housing Administration, the Department of Veterans Affairs, and the U.S. Department of Agriculture. Because these loans are issued under special circumstances (for example, USDA mortgage loans are typically intended for low-income rural buyers), they tend to have lower requirements and more flexible payment terms. Because they have their own unique criteria, these loans aren't offered to every potential homebuyer (see USDA Mortgage and VA Loan, below). Non-Conforming Mortgage A non-conforming mortgage is one that doesn’t meet the guidelines of government-sponsored enterprises (GSEs) like Fannie Mae or Freddie Mac, and so cannot be bought or guaranteed by those entities. A non-conforming mortgage might exceed the loan limit (in which case it becomes a jumbo mortgage), or it might not meet other requirements such as down payment size, debt-to-income ratio, credit score, or some other requirement. While non-conforming mortgages are not "bad" or undesirable, they’re more challenging for lenders because they can't be resold to GSEs like Fannie Mae and Freddie Mac, and so often have a higher interest rate than a conforming mortgage. However, because they don’t have to meet the federal guidelines, non-conforming mortgage loans can be more flexible about things like credit rating, proving income, down payments, and so on, at the cost of higher interest rates. Physician Loan Some lenders offer a loan product specifically for doctors called a physician loan. New doctors generally have a very high debt-to-income ratio early in their careers, but are expected to make considerably more income very quickly. Physician mortgages allow doctors to take on bigger loans than a typical borrower based on their expected future income and the lender's high expectation that the doctor will easily be able to pay the loan back. In other respects, these loans work like other standard mortgages. Refinancing Refinancing is the process of replacing an existing loan with a new one. The borrower takes on a new loan, typically with much more favorable terms, and uses the money to pay off the previous loan in full. There are many good reasons to refinance, including locking in a better interest rate or lowering the monthly payment amount – and often both. Loans can also be refinanced into shorter-term loans in order to pay off the balance sooner (such as refinancing a 30-year home loan into a 15-year home loan). Cash-In Refinance Cash-in refinancing is the process of refinancing an existing loan but bringing additional cash to the table. This allows the borrower to reduce the principal of their new home loan, which reduces the total debt, as well as reducPing monthly payments even further. One reason a borrower might choose to do a cash-in refi is to get to a loan-to-value percentage that allows them to remove mortgage insurance more quickly. Cash-Out Refinance A cash-out refinance is a loan that lets a homeowner tap into some of the equity they have in their house by getting cash "back" from the transaction; the cost of the cash is rolled into the new loan principal. A cash-out refinance loan is often taken out by borrowers who want to renovate, update, or perform major maintenance on their home, but don't have the savings or income to pay for these costs out of pocket. While it's common to invest the cash-out money back into the home, a borrower can use the extra liquidity for other purposes as well, such as paying off other higher-interest consumer loans. Reverse Mortgage A reverse mortgage is a loan often taken out by retirees who have paid off their home in full, having likely built up considerable equity in the process. The loan is secured against the paid-for property, allowing the borrower to receive income from their own home equity. This is intended for individuals who might otherwise have difficulties with living expenses. There are fees and closing costs associated with this loan, and this type of loan means losing some of that home equity to interest. The homeowner, or the heirs of the homeowner, will have to pay the balance once the original borrower no longer lives there — usually by selling the home itself. This option is usually aimed at older homeowners — the Home Equity Conversion Mortgage (HECM), for example, is only offered to individuals 62 and older. Renovation & Rehabilitation Loans A home renovation or rehabilitation loan is a type of refinancing that bases the amount that can be borrowed on the value of the house after the renovation, rather than before. This means the homeowner is getting credit for the renovation up front, as well as getting a lower rate, due to the loan-to-value ratio specific to renovation loans. There are some drawbacks, however: some construction companies don't like dealing with contracts involving loans like this because of disbursement rates. Streamline Refinance Loans Refinancing requires going through a similar process as applying for a new loan – because it is! It can feel like a long and involved process, especially if it involves changing lenders. Streamline refinancing is an option available to qualified homeowners which reduces the paperwork, simplifies the process, and eliminates some requirements (such as a credit check) so a refinancing can happen more quickly. Streamline refinancing is available for existing FHA loans, as well as USDA and VA loans. You can even work with a different lender than the one holding your current loan as long as that lender offers the same kind of loan. Requirements include being current on your existing mortgage and demonstrating there will be a tangible benefit to refinancing, for example. The downside? Streamline refinancing is not eligible for any sort of cash payout — it may only be used to reduce an existing mortgage, and cannot be used to tap into equity (as with, say, cash-out refinancing). Two-Step Mortgages A two-step mortgage is generally used by homeowners who are either constructing their own homes, or are planning to flip the property before the loan period is up. A two-step mortgage offers a lower introductory rate at first, then a higher rate after the initial loan period is over. This type of loan product is offered by lenders as a way to attract buyers who might not otherwise be eligible for a traditional loan. Although two-step mortgages are similar to adjustable-rate mortgages (ARMs), there is an important difference. A two-step mortgage has a single rate adjustment at the end of the initial rate period, at which point the new interest rate is locked in. An ARM may adjust the interest rate several times over the life of the loan — such as the 7/1 ARM, which adjusts the initial rate after seven years, then each year thereafter. USDA Mortgage USDA loans are offered through the United States Department of Agriculture, through programs like the Single Family Housing Guaranteed Loan Program. These government-backed home loans are generally offered to buyers in more rural areas, who can't necessarily make a large down payment. They have fewer restrictions and lower interest rates than other mortgages, but require an annual fee and other up-front guarantees. They're also only available in certain areas. VA Loan A VA mortgage is offered exclusively to qualified members and former members of the U.S. armed services. Because they are, in essence, a reward for faithful service to the United States, they may offer substantially more favorable terms to veterans, including no down payments or requiring lower credit scores. These loans are backed by the Department of Veterans Affairs and do generally require a VA funding fee. Other types of mortgage loans available to veterans include the VA Refinance Rate Reduction Refinance Loan (VA IRRRL), also known as a VA Streamline Refinance loan, This type of loan is a streamline refinance loan (see above) available exclusively to veterans, which allows them to switch from an adjustable to fixed rate, or to refinance to get a lower interest rate. Looking to Learn More About Your Home Loan Options? We hope this introduction to some of the many types of home loans that exist is helpful to you as you research your mortgage options. Keep in mind that not every lender offers every type of loan, and not every type of loan listed above is an appropriate choice for every home buyer. An experienced loan officer will be able to explain your options and guide you to the best mortgage for your needs. For the best mortgage lender in Denver and surrounding cities in Colorado, plus Arizona, and the greater Portland area, ask your real estate agent who they recommend for making all-cash offers, or contact Accept.inc to get Cash Approved today!
Dan S | Mar 2, 2022
Why Your Denver House Offers Are Losing to Other Bidders
As a prospective homebuyer, enduring an endless cycle of finding your ideal home, making an offer and then getting outbid by another buyer can be mentally and emotionally draining. All just to cross your fingers and stomach the process over and over again. Lather, rinse, repeat. But don’t panic. If you’re wondering how to compete with your fellow Denver buyers, we’ve got the inside scoop on why sellers may be rejecting your offer (it may not be what you think!) and the key to crafting a winning offer on a house. Why do my house offers keep losing? There are a handful of reasons why your house offers continue to be rejected. The key to turning the tides in your favor? Having a better understanding of what a seller considers an attractive offer, and drafting up a bid that appeals to those needs. For instance, maybe they’re looking for an offer with fewer contingencies or a speedier transaction. Or, maybe feeling confident that the deal will close is at the top of their priority list. Whatever the case may be, there are strategies homebuyers can put into play that’ll improve their chances of making a winning offer on a house. How do I stop losing out on multiple offers? We know what you’re thinking: you’re losing out on houses because you’re getting outbid. We’re going to let you in on a little-known secret… In a multi-offer situation, the highest bid doesn’t necessarily guarantee a win. Prevailing in a sea of other buyers all boils down to appealing to the seller. As a Denver homebuyer, having a trusted real estate agent on your side will help you create a strategy that strikes a balance between your goals and the seller’s goals. Think of all the valuable intel you can tap into by working with an agent — from what’s happening in the local Denver market to property values in the neighborhood to crafting a stand-out offer. Plus, they’re expert negotiators. And, let’s be honest, who wouldn’t want to get the best deal possible? Taking your time to interview and choose the right real estate agent can make or break your house-hunting experience, especially in a hot market like Denver. What are my options in a bidding war? 1. Consider a higher earnest money deposit Often called a "good faith" deposit, earnest money shows a seller that you’re serious about purchasing the home. The more earnest money you’re willing to put down, the more enticing your offer will be. While the money isn’t typically handed off to the seller until after they’ve accepted your offer, you can communicate your intent to make a higher earnest money deposit when submitting your offer. On average, buyers put down about 1%–3% of the home’s purchase price as a good faith deposit, depending on market demand and the terms outlined in the purchase agreement. In a competitive situation, your real estate agent will be your go-to resource when determining what earnest money amount will make your offer competitive. 2. Consider waiving certain contingencies A real estate contingency, also referred to as a "walkaway clause", is a stipulation included in an offer that requires certain conditions to be met in order for the sale to close. For example, some buyers may choose to include a home sale contingency, which means their offer is contingent on selling their existing home first. For sellers, contingencies like the home sale contingency pose a serious risk. For one, it can delay the purchase process and prolong the closing timeline. It also introduces uncertainty to the equation, as the entire deal could fall through and the buyer can walk away from the deal with no significant risk. The same nerve-racking dilemma applies to the financing contingency, which states the home sale ultimately depends on the buyer’s ability to secure financing. If a traditional mortgage lender pulls the rug from under you and denies your loan application, the deal is null and void. In fact, even the risk of a loan officer being slow and ineffective can be a major deal breaker for a seller who wants to prioritize a fast and efficient closing. That doesn’t quite translate to the confidence and certainty sellers are looking for. Instead, it means sellers are forced to start the process from scratch — relisting their home, assuming unexpected expenses and searching for a new buyer all over again. Ouch.Sellers (and buyers for that matter) don’t want to sit idly by, anxiously biting their nails while they wait for contingencies to clear … especially if there are other options! 3. Consider making an all-cash offer Make a cash offer? You’re joking, right? The average homebuyer doesn’t have that kind of money lying around. But, the reality is, if you've lost several bids already, you've probably been up against cash buyers. The fact of today's market is this: all-cash offers are the way to win. But here's the thing: you don’t have to have half a million dollars or more stashed away to compete against an all- cash offer with your own cash offer. The secret to making all-cash offers in Denver is working with iLender Accept.inc. We help everyday people who qualify for a mortgage secure the upfront liquidity needed to bid with the power of cash in their back pocket. Let’s face it: when a seller is choosing between an all-cash offer and one made using a traditional mortgage lender (read: with a risky financing contingency), which do you think they’ll pick? The certainty of cash, which can close in about 2 weeks? Or, the slower, riskier option? Not only are cash offers 4X more likely to win over an offer with a traditional mortgage, but buying a house with cash puts more negotiating power in your hands. So, just how much negotiating power are we talking about? On average, Accept.inc buyers enjoy a discount of $11,545 off the highest offer in a bidding war. And that’s just the average. Some buyers secure dramatically larger discounts off the highest bidder. One Accept.inc buyer won a home by submitting a cash offer that was $98,000 less than the highest competing financed offer. Now, that’s the power of cash! Let that sink in for a moment… That means those who got Cash Approved™ submitted a winning offer on a house that was roughly twelve thousand dollars less than the highest bidder. What’s more, homebuyers facing little competition on a property (a.k.a 2 offers or less) pay approximately $15,979 below the home’s listing price. That's the hidden discount of a cash offer. All-cash offers give homebuyers the competitive edge needed to score the winning offer on a house, while also providing money-saving benefits. Whether it’s in the form of a lower down payment, a lower sale price, or more immediate equity, cash is the secret ingredient to breaking the cycle of rejected offers. And the icing on the cake? After you’ve officially closed on your new Denver home, you can pay back the loan over time – just as you would through a traditional mortgage lender. There is no added cost to turn your offer into cash with Accept.inc and there are no hidden fees. No itty-bitty fine print you need a magnifying glass to read. It’s simply a new (and long overdue) approach to mortgage lending – one that gives everyday people the certainty, speed and competitive advantage that comes with shopping the housing market with cash. Make the winning offer on a Denver home Forget the days where being a cash buyer meant you’re an A-lister, an investor who flips properties, or a corporate developer. Now anyone who qualifies for a mortgage can become a cash buyer when they have Accept.inc on their side. Continuously getting outbid and losing out on houses is stressful and disheartening. We want to ensure our Denver community continues to thrive and the everyday homebuyer has the opportunity to create lasting memories in their dream home. So, the moral of the story? Crafting a winning house offer isn’t about making the highest offer, it’s about making the best offer. Ready to say farewell to losing offers and increase your chances of making a winning offer by 4X? Get Cash Approved today!
Kelly K. | Feb 4, 2022