The five biggest drawbacks of a lender sponsored offer
Not all offers are created equally.
The importance of choosing the right deal, not just the one with the highest price, cannot be said enough. The right offer is one that actually completes and allows you to move on from the transaction. The wrong offer has an unexpected problem on the 11thth Hour that forces the deal to fail and leave you back in first place. In this post, we cover the top contingent liabilities that lender-funded offers typically have and the main drawbacks of such offers.
The most common emergency problem when dealing with “funded” buyers is the final approval of the mortgage by the buyer’s lender. Although the process has improved a lot over the past decade, there are still plenty of tires to crack to get to the final table. A full-price, 60-day mortgage offer may sound attractive on the surface, but it may not always be. Here are five potential downsides to a lender sponsored offer.
No matter how qualified a buyer may be, they will still need lender approval to buy your property. The transition from loan application to closing is a multi-step process including assessment, application review, title search, homeowner insurance, condition review and distribution of closing documents. Only a tick at one of these checkpoints can be pinned in days (if not weeks) to complete. As your funded buyer goes through this process, you will be expected to pay your mortgage, taxes, insurance, and utilities on the property until the deed is transferred. Often times, these can be expenses that are not budgeted and can affect your available funds for moving on to your next property.
We addressed this in the previous section, but getting a loan to graduate can be a real challenge. Lenders have been hit hard during the mortgage crisis and only want to make solid claims. Every point in the loan application is checked and checked with a fine comb. It is not uncommon for a lender to require that withdrawals or deposits be reviewed, documented, and verified on a bank statement. If you think you are not in the forest, an insurer can come back and request additional documents, which will take more time. Lenders no longer leave any doubts about documents in the loan file. There is really no such thing as a simple loan application, regardless of creditworthiness, down payment or assets. There are too many horror stories out there about loans being declined weeks after the valuation based on the valuation, title or something on your tax return. Every offer financed by the lender carries at least one such risk.
A typical first step after accepting a funded offer is the home inspection. Buyers want to know exactly what they are getting into regarding the physical condition of their next home – a home inspection provides a detailed breakdown of the condition of a home. Most inspectors are very knowledgeable and provide great service to buyers. You will often find dents and damage to the property that the seller never knew existed. If these items are sold at a significant price, the buyer may become shaky and feel like they are paying too much for the property. Buyers can use these results to justify a credit note. Depending on the severity of the repairs required, certain lenders may only approve their funding until a repair is complete. In any event, the seller is at risk of an inspection report that includes feedback wasting significant time and money on repairs in the following ways.
Repair and / or credit inquiries
An inspection filled with negative elements leads to several problems. The first, as mentioned earlier, is a possible price cut. This stings even more if you weren’t aware of the problem and didn’t budget for it appropriately. The second arises when a buyer submits a request for repair to COE. In this scenario, as a seller, not only do you need to find a contractor who can do the job, but also one who can do it on your timeline. Not all good contractors are able to adjust their schedule to accommodate one repair request per transaction schedule. In addition, lenders may even require inspection items to be repaired and checked by the appraiser or inspection prior to approval. Once your contractor has completed the work, you will need to bring the appraiser and / or the house inspector back to the property to document the work and sign the lender. Needless to say, executing a repair request to the satisfaction of a buyer and / or their lender can be a logistical challenge that can add days or weeks to a transaction.
Buyers will find a better option
In hot markets, it is not uncommon for buyers to submit bids for multiple properties at the same time. They can “rummage around” until one of their offers is accepted. If more than one of their offers is accepted they will need to decide which property to proceed with. This decision can be made days or even weeks after the deposit. If, on the other hand, you’re selling to a buyer like this who cancels the escrow account after finding a better option, you might be out of luck.
Knowing when to accept a lower cash offer with fewer contingent liabilities or a higher offer pending approval of the mortgage is a delicate balance. As a seller, you need to consider your financial situation, your real estate goals, and your real estate timeline. You just need to know that any offer with a funding option has some level of risk that needs to be considered.
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