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In most cases, the buyer will select a lender, unless in the contract you have
agreed differently. It is usually written in the contract that the buyer will
submit a loan application within a specified number of days, usually within
3 to 5 days of the contract date is reasonable.
At that time, the lender will typically collect the fees for a credit
report and property valuation. Who pays these fees is a matter of negotiation
and is specified in the contract. The completed credit report will provide the
lender with a basis for approving or disapproving the loan. However, other
factors, in addition to credit history, will affect the lender’s decision to
approve the loan. An explanation of some of these factors follows.
The Property Valuation
A property valuation is typically required to establish the value of the
home for the buyer’s mortgage lender.
- If an on-site inspection is required, the seller or seller’s agent
should plan to be present during the inspection.
- The seller should be prepared to provide the appraiser with a
copy of the survey done at the time the home was purchased.
- Provide the appraiser with the names and contact information of the buyer,
seller and any real estate agents involved.
- Make a list of all major improvements to the home such as a new roof,
exterior paint, landscaping or sprinkler system, including their approximate
cost and date of completion. Information on comparable homes sold in the
neighborhood will also be useful to the appraiser.
- To justify a higher price per square foot than that of comparable homes,
point out special features of your home that add to its value.
If the home is appraised at less than the selling price, or if the buyer
is not approved, the deal may fail. The parties involved may, however,
negotiate a solution.
- The sale price can be reduced to the appraised value if both buyer
and seller agree.
- The lender may approve the loan for a home appraised below sale price
if the buyer is willing to make a substantial down payment.
The contract should specify the rights and obligations of each party under
such conditions. Prior to returning the earnest money, the escrow company may
require some form of a release from the contract as agreed upon and signed by
the buyer, seller and real estate agents.
Assumable Loans
Assumable loans can be very attractive to buyers, especially if the interest
rate is below current market rates. The buyer’s and seller’s closing costs
will generally be far less when assuming an existing note than when a new
note is established. Your mortgage company can tell you if your current note
is assumable and if it is a qualifying assumable loan.
If you have equity in your home, either the buyer who assumes your existing
note will need cash to buy out your equity or you may be able to finance the
equity for the buyer in the form of a second mortgage.
If you intend to sell on assumption, first find out what obligations you will
have if the buyer defaults on the note. Some mortgage companies will grant the
seller a release for a fee. In most cases you will remain liable on the note if
the buyer defaults and you may not be notified until the payments are far in arrears.
This could ruin your credit rating. Even if the buyer must qualify for the
assumption, know your obligations in case of default on the note. If the buyer
makes a large down payment, it might be worth the risk if you are anxious to sell.
Owner Financing
If there is no outstanding lien on the home, a seller might consider carrying
all or part of the mortgage. The seller becomes the lender. If there is an
existing mortgage on the home, a second mortgage may be written to finance the
owner’s equity. Some first mortgages contain clauses prohibiting the creation
of a second mortgage.
Before you proceed, discuss with your attorney what complications can arise
with owner financing and carefully check the buyer’s credit history. The
appropriate documents should be prepared by your attorney, with document
preparation costs to be negotiated with the buyer. Owner financing may not be
available in all states, so be sure to consult your attorney before proceeding.
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Selling A Home
Selling A Home
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