Real Estate Buyer Representation | Search the Pensacola MLS | Pensacola Dream Home Finder | 1st Time Buyer | Buyer Information | Buyer Q&A and FAQs

Home Buyer Information

Purchasing a home is one of your most significant investments during your life. Sure, picking the place you will be living is important. You should consider raising the family, good schools, and location with respect to your work. But you are also investing a large amount of money. If you prepare yourself in the beginning of the process, then it will seem less overwhelming and uncertain as you maneuver through the real estate buying process. I hope to provide you with information in enough detail to aid you in making smart, informed decisions. Feel free to call or email me with any questions. We want to be your Pensacola real estate agent.

Benefits of Owning Your Own Home
• A Great Investment
• Income Tax Savings
• Stable Monthly Housing Expense
• Forcing You To Save
• Freedom
• More Space

Important Things To Avoid Prior to Buying Real Estate
• Don't Move Your Money
• The Effect of Changing Jobs
• No Major Purchases of Any Kind

Don't Buy That Car
• When Income Grows and You Want to Buy "Stuff"
• Debt-to-Income Ratios
• How a Car Paymetn Can Reduce The Home Purchase Price

The Economic Cycle and Buying a Home
• Recession and Expansion
• Supply and Demand
• Can I "Time the Market"?

Comparable Sales and Your Offer Price
• Setting Your Offer Price
• Comparable Sales in the County Record
• Comparable Sales in the Pensacola MLS
• Comparable Pensding Sales Transactions
• Other Considerations For Your Offer Price

Major Factors Influencing your Offer Price
• Property Condition And Its Influence on Your Offer
• Home Improvements And Their Affect On Your Offer Price
• Market Conditions And Your Offer Price
• The Seller's Motivation And Its Affect Your Offer Price
• You Final Decision As To Your Offer Price

Offering to Purchase Real Estate- the Basics
• Introduction and Overview
• Contingencies in a Real Estate Offer
• Earnest Money Deposit
• The Real Estate Closing Date
• Transfer of Possession

Writing an Offer - Safeguards Regarding the Property
• Disclosures From the Seller
• Property Condition
• Inspections You Should Require
• Final Walk-Through Inspection

How Financing Details Affect Your Offer
• Down Payment
• Interest Rates
• Closing Costs and Incentives
• Seller Financing
• Cash Offers
• Other Financing Details in The Offer

How FHA and VA Loans Affect Your Offer
• The Extra Costs to the Seller
• FHA and VA Appraisals

Selecting Service Providers
• The Seller Must Agree
• Escrow and Settlement
• Real Estate Title Insurance
• Termite and Pest Inspection

A Great Investment
As a general rule, homes appreciate about three to five percent per year. Some years will be more, some less. This amount will also vary from neighborhood to neighborhood, city to city, and region to region.
Three to five percent may not seem like that much. Stocks have, at times, appreciated much more, and you can earn over six percent, albeit not currently, with one of the safest investment of all like treasury bonds.

But you need take a second look…
Let's say if you bought a $200,000 piece of Pensacola real estate and you did not pay all cash for the home. Instead, you received a mortgage for about 80% of the value and only paid $40,000 down.

Assuming an appreciation rate of 5%, a $200,000 property would increase in value $10,000 the first year. That means you will have earned $10,000 on a $40,000 investment. Your annual return on investment, or ROI in real estate investment terminology, would be a very attractive twenty-five percent.
Admittedly, you are now making mortgage payments, paying property taxes, and even paying some other costs. However, since the taxes and mortgage interest tax deductible, the government is subsidizing your real estate home purchase.
Your ROI when buying real estate in Pensacola is higher than just about any other investment to choose from.
If you are transitioning to a home for the first time, say from an apartment, you are going to be very happy with all the additional space you now have available.

Return to Top ^

Income Tax Savings
Because of income tax deductions available to homeowners, the government is essentially subsidizing your purchase of a home. The mortgage interest and property taxes paid by you in any given year can be deducted from your earned income to lower your taxable income.
For example, let's assume your initial mortgage loan balance is $160,000 with an interest rate of 7%. During the first year you would pay $11,148 in interest. If your start in January, your taxable (AGI) income would be about $11,148 less - due to the IRS interest rate deduction.
Property taxes are also tax deductible, too. Whatever property taxes you pay each year will also be deducted from your earned income, lowering your taxes further.

Return to Top ^

Stable Monthly Housing Expense
When you rent, you can certainly expect your rent to increase from time to time. If you receive a fixed rate mortgage when you buy your home, you will have the same monthly payments for the entire time until it is paid off. If you receive an adjustable rate mortgage, usually your payments will remain within a defined range for the life of the mortgage - although there is no future guarantee, interest rates haven't been as volatile lately as they were in the seventies and early eighties.

Imagine how rent might increase to ten, fifteen, or thirty years from now. Which makes more sense?

Return to Top ^

Forcing You To Save
Some people are not disciplined at saving enough money, whereas a house or real estate can be viewed as an automatic savings vehicle. You accumulate wealth in two ways. Firstly, each month, a portion of your payment applies to the principal. Not much in the early years, but over time it accelerates. Secondly, your home typically appreciates (recall the 3 to 5% we mentioned earlier?), although there may be down years as well, but over time, as history has shown, the home owning process, is one of the very best financial investments that one can engage in.

Return to Top ^

Freedom
As a renter, you are normally limited as to what improvements you can make on your home. You need to obtain permission to make certain types of alterations or improvements. It doesn't typically make sense to spend thousands of dollars painting, carpeting, tiling, installing window treatments when you don't financially benefit from it - the landlord does.

While your landlord needs to effectively manage his expenses, they will probably not be willing to spend much on personal alterations or improvements either.

As a home owner; however, you can do essentially whatever you desire. You reap the benefits of any improvements, whether they result in financial gains or simply improve your quality of life all the while living in the environment you created, not some community manager or landlord.

Return to Top ^

More Space
Indoors and outdoors, you will most likely have more space when you own your own real estate or home. Not always, but condominiums frequently provide more room than an apartment possibly giving you your own laundry, storage areas, garages, and/or bigger rooms. Apartment communities are designed to allow the maximum number of units producing income than they are about creating the maximum space for each tenant.

Return to Top ^

Things to Avoid Prior to Buying Real Estate

Return to Top ^

The Effect of Changing Jobs
As long as you maintain an income stream, changing employers will not necessarily affect your ability to obtain a mortgage loan, especially if you will be experiencing a pay increase. For some borrowers or home buyers; however, the effects of changing jobs can be detrimental your application.

How Changing Jobs Affects Borrowing

Salaried Employees
If you are an employee on salary who doesn't earn additional income from overtime, bonuses, or commissions, changing employers should not pose a problem. You do need to ensure to remain in the field of work. Ideally, you will be earning a higher salary, that can allow you to better qualify for a mortgage loan.

Hourly Employees
Full time employment based on hourly wage without over-time shouldn't create any problems.

Commissioned Employees
If commissions were a substantial portion of your income, you should consider not changing jobs before buying your home. The commissions are averaged by the lender over the past several years.

Changing employers creates uncertainty in this situation about your future earnings, and specifically the portion from commissions. There will be no track record from which to show repeatable commission income. Even if you are happen to be selling the same type of product, and have a commission structure similar to your old job, the underwriter cannot predict with certainty that past earnings will accurately reflect future earnings.

In this case, changing jobs would impact negatively, your ability to buy a home.

Bonuses
If bonuses represent a substantial portion of your income on the new job, you should consider delaying the employment change. Mortgage lenders rarely take into consideration future bonuses as income unless you have been in the same position for the past 2 years and your track record of receiving the bonuses are expect to project into the future. If so, underwriters typically average your bonuses over the last several years in their calculations of your income.

Part-Time Employees
If you rarely work a full forty hours per week, you shouldn't change jobs. This leaves the lender with no way to determine how many hours you will work in the new position, and hence no way to accurately calculate your future income. By remaining on the old job, they can just average your past earnings.

Over-Time
Since all companies award overtime hours differently, your income from overtime work cannot be easily forecasted if you change jobs. If you continue with your present job the lender will probably give you credit for overtime wages. They will determine your overtime earnings from the past several years and then calculate an average.

Self-Employment
If you are employed by a company, and are considering a change to self-employment prior to your real estate purchase - don't do it. Wait until you buy the home first.

Underwriters like to see an established, two year track record of self-employment when evaluating a borrower and approving a loan. Additionally, self-employed individuals tend to document many expenses on their Schedule C tax returns, especially so in the beginning years of self-employment. While this may minimize your tax obligation, it also minimizes your income that is needed to qualify for a real estate loan.

I would also recommend postponing the decision to change the legal structure of your business prior to buying your home.

Return to Top ^

No Major Purchase of Any Kind
Review the paragraphs below entitled Don't Buy That Car, and apply the advice to any other major purchase that would create debt. This includes electronic equipment, appliances, furniture, jewelry, expensive weddings, vacations, etc.

Return to Top ^

Don't Buy That Car
When an individual's income grows and they begin to manage to set aside savings, they commonly experience the urge to spend more money.


We Americans have that special love affair with the automobile. This can easily become a high priority item on our shopping list. Later, it's easy to add other things, and one of those may be a piece of Pensacola real estate.
However, by that time, home ownership may have become a distant dream, and you may have already purchased, or even worse, financed the car.

This is all too common. And you don't want it to occur before or after you get pre-qualified for a home mortgage loan.

As part of the loan application interview, you will tell the lender your price range. He or she will ask about your job and income, savings, monthly expenses and debts. They will then give you their opinion. He or she might begin by saying "If only you didn't have that large car payment, you would have qualified for the mortgage to buy that house."

Return to Top ^

Debt-to-Income Ratios
When calculating your ability to qualify for a loan on real estate, a lender will look at what they call a debt-to-income ratio. A debt-to-income ratio is equal to the percentage of your gross monthly income (before taxes) that goes to paying your debts. This includes monthly housing costs, including interest, principal, insurance, taxes, and homeowner's association dues. It will also include monthly consumer debt such as credit cards, student loan payments, installment loans, and your car payments.

Return to Top ^

How a Car Payment Can Reduce The Home Purchase Price
Let's assume that you earn $5000 per month and you have your car payment is $400. At an interest rate of 7% on a 30 year loan, you would qualify for about $50,000 less than if you didn't have that payment.

Even if you think that you can afford the car and its payment, mortgage companies have to use the set guidelines to approve your mortgage application. Either way, you should get pre-approved by a lender.

However, if you have not financed the car, remember one thing -- whenever the desire to purchase the car arrives, consider buying your Pensacola real estate home first. The home is much more important when considering your financial well being.

Return to Top ^

Recession and Expansion
When the economy is growing and brisk, people in general feel confident about their prospects for the future. As a result, people spend more money. They buy new cars, eat out more, do more entertainment, and….
…buy new homes.

When the economy slows down, and it always does in cycles, companies lay off employees, consumers tighten up and are more cautious about spending their money; perhaps even saving a little more than they usually due. When this happens, the economy slows even further. If it slows enough this is called a recession.

During such times, fewer people are buying real estate. Regardless, some homeowners will need to sell their homes. Employees are relocated, some can't make their mortgage payments, and families grow to the point in which they exceed the capacity of their current home.

Return to Top ^

Supply and Demand
When the supply of available real estate exceeds the supply of real estate buyers, home appreciation slows and prices begin to fall, as happened in the early eighties and nineties.

If you are fortunate enough to purchase your home during a slow period, you stand a chance of your home appreciating quite nicely as the economy will certainly begin to show signs of strengthening. Sometimes the real estate values can surge upward drastically. All across America, this is what happened in the late eighties, and mid 2000's.

Return to Top ^

Can I "Time the Market"?
A problem with trying to time your real estate purchase to the economic business cycle, is that we, including the experts, aren't good at accurately predicting the future. Another challenge for most buyers is interest rates typically go higher during depressed market conditions while incomes may not keep up. That's why fewer people can qualify for a mortgage loan and home purchase than in prosperous times.

Why You Should Not Wait
This strategy typically works the best for first time home buyer. Those that already own their homes usually must sell it in order to purchase their next one. Likewise, if a seller wants to sell their home to take advantage of high prices during a "hot" market, they generally will have to purchase their next piece of real estate during that same, higher priced, hot market

It all tends to equal out in the long run.

Return to Top ^

Setting Your Offering Price
preparing an offer to buy a piece of Pensacola real estate, you already will know what price the seller is asking. But you will what to formulate the price that is good for you.

Setting your offering price is typically a process involving three steps. First, realtors typically look at recent real estate sales of similar properties for an indication of price range. Then, we'll analyze more data, such as improvements on the property, current market conditions, circumstances of the seller, and condition of the home. This all helps to settle on a reasonable price that you think would be fair to pay for the property. Lastly, considering how you or the realtor plan on negotiating, you can adjust your price to come up with your initial offer.

Comparable Sales In The Area
Realtors have access to the recent sales of homes in the area. Comparable sales are recent sales of real estate that closely match the one you are considering to buy. Specifically, comparing prices of properties that have similar number of bedrooms, bathrooms, square footage, garage parking, lot size, and construction type are viewed as acceptable.

If the property that you are interested in is within a subdivision, then you should likely find some models that even exactly match for comparison.

There are typically three common sources of information and data on comparable sales, all of which can be accessed by a real estate agent. It is a little more difficult, if not impossible, without the proper access or memberships to access this data. Two of the most common sources of this information are the local county public records and the Pensacola Multiple Listing Service (MLS).

Return to Top ^

Comparable Sales in the County Record
The most accessible source for anyone searching for information on comparable sales is the county's public record. When a property is sold and deeded to the buyer, in almost every circumstance, this transaction and deed is recorded in the county's records office. The use this information with the real estate sales data to correctly assess the property for taxes.

Assuming there hasn't been any alterations the property or the related buildings, the information available is usually accurate regarding sales price, property lines, and building square footage. Since most counties now make their public records available on the internet, it can be convenient to use the public records as your source of information for real estate sales data.

One problem with the county published records is that it can be running six weeks to four months behind. This time lag may not matter for studying trends; however, current information is more valuable when assembling an offer on real estate.

Return to Top ^

Comparable Sales in the Pensacola MLS (Multiple Listing Service)
Most everyone is aware that the MLS or Multiple Listing Service is a private, web-based, database where Pensacola Realtors can list their properties for sale. Recently, these associations have granted the general public access to some of the data on public sites.
After a property has sold, the selling price is documented on the listing in the MLS by the Realtor. It is a large database on a vast majority of past sales and contains much more information on real estate that could be gleaned from the county records. This information is available to local Pensacola real estate agents who are also members of the local Multiple Listing Service, or the Pensacola MLS.
Your agent should provide this data to help you determine your offering price.

Return to Top ^

Comparable Pending Sales Transactions
Obviously, the most valuable information is that that is most current. A sale from the last week or two has more validity in comparing your home to one that sold six months ago. The problem here is that there is probably no record of the price until the sales is completed. This information is not recorded in the county's public records because the deed hasn't been recorded.

Unfortunately, this information isn't typically available in the MLS either. Once a property has received an acceptable contract, it becomes known as a pending sale but the sales price is not added to the listing. Prices aren't entered into the system until the transaction closes. This acts to protect the seller in the case that the transaction falls apart and the real estate goes back on the market. If this weren't the case, it might give an unfair advantage to future buyer if they happened to know what price the seller was willing to accept.
However, if a real estate agent has a reason to learn the sales price, sometimes they can find out via professional courtesy.

Return to Top ^

Other Considerations For Your Offer Price
Analyzing information and data from comparable sales aids in the establishment of a price range one should consider when making an offer to purchase real estate. As mentioned, recent sales should be given more weight, but there needs to be additional analysis prior to establishment of the offering price. Consideration needs to be given to the property condition, what improvements have been made, state of the current real estate market, and the seller's circumstances.

Return to Top ^

Property Condition And Its Influence on Your Offer
After you have performed a cursory inspection of the property in which you are interested, you should know how it stacks up and compares to the subdivision and neighborhood. It should fall into one of three categories: below average, average, or above average.

When evaluating the property's condition, there are several things one should consider. Structural condition is very important. Items such as roof, ceilings, walls, floors, windows, and doors need to be verified as sound. Giving attention to bathrooms, kitchens, the associated plumbing, electrical system, and appliances are important too. Paint, floor coverings, carpets, fixtures, and the yard should round out your analysis.

Comparison to neighboring properties and the comparable sales list completes the analysis. If you have a good agent representing you, then they (and/or you) will have actually looked at most of these homes and will be able to provide the analysis.

Return to Top ^

Home Improvements And Their Affect On Your Offer Price
Even upon comparing model matches within a subdivision of similar homes, you should see whether the owners have made any substantial improvements to the properties while ignoring cosmetic changes. Items such as additions that increase the square footage and add a desirable element to the property is what is very important. Quality work, obviously, is paramount in giving credit to the improvement. Improvements such as swimming pools, expensive flooring upgrades, kitchen modernization are also important. Understand that almost all improvements provide a smaller increase in value than their cost. A good Pensacola real estate agent can provide guidance in this analysis.

Return to Top ^

Market Conditions And Your Offer Price
A hot market is also known as a "seller's market." In these times, real estate can sell within a few days after they are listed and often there will be multiple offers from buyers. Occasionally, homes even sell for a value above their asking price. Although every buyer wants to get a good deal on their new home, reducing your offering price by even a relatively small amount could result in someone else getting the home you desire.

A slow market is known as a "buyer's market." Here, real estate may languish on the available market for quite awhile with offers being few and far between. Home prices typically stagnate and even decline temporarily. This situation allows the real estate buyer the opportunity to be more aggressive in offering a lower price for a given property. Even if your offer is too low for acceptance, the seller is more likely to make a counter-offer, allowing negotiations to proceed.

In a steady market, no thumb-rules really apply as to whether a real estate buyer should make an offer at the low end or high end of the acceptable range. You might find yourself competing against multiple offers on your desired home, or be in a situation where your offer has been the only one in months.

Return to Top ^

The Seller's Motivation And Its Affect Your Offer Price
Most of the time, the seller's motivation won't dramatically affect your ability to achieve a very low price on a property, but it may certainly save the buyer a few thousand dollars. Commonly, "motivated seller" is one who has already purchased their next home or is faced with an immediate relocation to a different area. They will have less patience for the home selling process especially if making two mortgage payments at the same time will have large consequences on their bank account. In these situations, giving up a few thousand dollars by the seller is a real possibility.

A crisis in the seller's family can also motivate a seller into a quick deal. Don't be convinced that the situation is true when you see a real estate ad stating "motivated seller," "divorce," "relocation," or something like that. More often than not, this is just hype in the advertising to generate phone calls, showings, and more customer leads for the seller's Realtor.

An exception to this is when a realtor is trying to sell a home that they or another real estate agent within their same brokerage have listed. Given this situation, the Realtor, obeying their code of ethics while representing the seller, shouldn't provide the buyer with this information in order prevent an unfair advantage over the seller.

Although, some MLS rules are changing that may require the Realtor to disclose Lis Pendens action, future foreclosures, and bank-owned properties (also known as REO or real estate owned properties) within their MLS listing, a savvy real estate agent should be able to discern or identify these situations for a buyer.

Return to Top ^

Your Final Decision As To Your Offer Price
Summarizing, using comparable sales data will help determine your price range for a particular piece of real estate. Factoring in various factors like improvements, property condition, seller motivation, and market conditions help determine what a fair price should be as well as an acceptable range.

The fair price is what you would be willing to pay for the property at the end of negotiations. The initial offering price to begin negotiations is up to you and has something to do with you or your realtor's negotiating style. Most buyers begin with a lower price than what they will eventually be willing to pay. Be somewhat careful about starting too low, most sellers, due to their emotional equity in their home that they are selling, and many inexperienced or low-quality realtors, may not even respond to a low offer. Your real estate agent's negotiating capabilities need to be sharp in order to extract a very low price from a seller by attempting to remove the selling team's emotion.

Your realtor should provide guidance; however, you will make the decision. The offer price that is presented is totally up to you.

Return to Top ^

Writing Your Offer to Purchase Real Estate
Now that you have found the home you want to buy, it's time to write an offer. This shouldn't be as easy as it sounds. This is the first step in negotiations of the sales contract with the seller of the real estate. Try to put yourself into the shoes of the seller and imagine what their reaction might be what they find in the offer. Recall, your goal is to get what you want; however, you most likely will get nothing if the seller doesn't get some of the things they want.

The offer has much more substance than indicating the price that you want to buy the property for. Due to the large amounts of money involved, and our litigious society, both you and the seller are going to want contingencies and protections to protect yourself and limit your risk.

In the real estate contract, the buyer includes the price they are willing to pay as well as other details such as how the financing will be made, the amount of down-payment, who pays each of the various closing costs, what personal property is included, the time requirements for various milestones, who pays for repairs, what happens upon cancellation, what title company is used, how disputes are settled, among other things.

It is clearly more intricate that just about any other purchase. The real estate transaction is a major event for both the seller and the buyer. It has major financial and emotion impacts compared to other investments.

Return to Top ^

Contingencies in a Real Estate Offer
In most real estate transactions there will be a slight challenge or two, but most things will run smoothly. However, you should anticipate potential issues and problems so that if something goes wrong, you have the ability to cancel the contract without a penalty. These "contingencies" should always be included in your purchase contract when buying a home.

An example is when a buyer agrees to purchase a new home prior to selling their previous one. Once the contract has been accepted on the new property and becomes a "pending sale" but has not closed, the buyer will typically make the closing of the previous home a condition of the contract. If they didn't include this contingency, they may end up making two unwanted mortgage payments.

Other common contingencies in the real estate contract include the successful ability of the buyer to obtain suitable financing for the mortgage, that the appraisal of the property results in at least what you expect, and that the result of property inspections are acceptable to you and/or your lender.

Basically, the contingencies act to protect you in the event that something comes up that prevents you from wanting to purchase the home. If you attempt to cancel a real estate purchase contract without these contingencies, you may find yourself in legal trouble or at a minimum, forfeiting the earnest money deposit that you tendered.

Return to Top ^

Earnest Money Deposit
Once you have determined your initial offering price, one of the next steps is to decide on how large of a deposit to submit with your offer. You should make the "earnest money deposit" large enough to demonstrate to the seller that you are serious. You do not; however, want to put too much funds at risk.

Some real estate agents recommend the deposit to be less than two to three percent of the offering price. You should limit your deposit to avoid an issue with your available funds and the lender application process, as well as the slight possibility of a dispute with the seller ending up in a prolonged dispute with the money tied up and unavailable.

Taking this a step further, these large earnest money deposits may convince a real estate seller to the point that they may even accept a lower offer, thereby saving you money.

Return to Top ^

The Real Estate Closing Date
It is essential that a closing date be included as part of your offer. This allows both you and the seller to make moving plans, and the seller to proceed with buying their next property. Typically, closings do occur within the specified time, but try to avoid being inflexible to the point that any delay will create an insurmountable problem.

For example, if you happen to be renting and are required to give your landlord notice that you are moving, you should allow a little flexibility in the event that your purchase is delayed and closes a few days late. You may not appreciate finding yourself and family in a motel with your all of your belongings packed up inside moving van or in storage while paying storage costs.

Some delays may drag for weeks. Your plan should address such a contingency.

Return to Top ^

Transfer of Possession
A real estate transaction is considered "closed" after the deed has been recorded. At this point, you own the property. However, it may not be possible to occupy your new home immediately. There can be several scenarios, but the most common is that the seller is tied up in the purchase of their next home and the closing was simultaneous, with no ability to move prior to your closing.

As a result, it is not uncommon to allow a seller about three days to turn over possession of the home. This transfer of possession should be clearly stated in the contract to avoid confusion.

Return to Top ^

Property Condition
One of the many things that can spoil the mood and excitement upon taking possession of your new home is to find it dirty and in disarray. To prevent this, you need to make it clear in your contract that certain standards at closing must be met. Overlooking this might lead you to discover that the seller or his neighbors have been using the back yard as their preferred trash dump - and you have no recourse to do anything about it except clean it up.
Other items to include in the contract are to ensure the appliances operate properly, the roof doesn't leak, windows aren't broken, plumbing is in good order, electrical system is not malfunctioning, and that the yard is tidy.

Return to Top ^

Inspections You Should Require
In addition to an appraisal and termite inspection, I always recommend that the buyer have a professional home inspector go through the house to thoroughly identify potential problems. Most likely, even though the buyer will have looked over the property, there are items that a seasoned professional may be more inclined to discover. Even if everything checks out fine, the piece of mind is typically worth the reasonable fees.
The seller usually desires that these inspections be performed quickly so that all of the items necessary to complete the closing can move forward. Upon receiving the inspection results, allow yourself enough time to review, question, and approve the report. If items appear in the report that you do not want to approve, and assuming you have the appropriate contingencies included in the contract, you can either negotiate with the seller about the repairs or back out of the purchase. Typically you should allow ten to fifteen days to have the inspection conducted, report reviewed, and decided upon.

Return to Top ^

Interest Rates
The main reason for including the financing contingencies in the purchase offer is to protect yourself, the buyer. If interest rates suddenly increase, your mortgage payment may end up being much higher than you anticipated. Listing a maximum acceptable rate in the contract will protect you by allow you to back out in this event.

Conversely, the seller will probably insist that you provide some flexibility in the financing terms. The seller might possibly suffer due to lost marketing time or a confliction in their moving plans due to a cancellation of the contract.

Return to Top ^

Closing Costs and Incentives
Common incentives, as part of the contract, include the seller paying a portion of the buyer's closing costs or some financing incentive such buying down the interest rate or providing some funds at closing to help the buyer.
Whenever you attempt to gain incentives such as these, count on the seller being less willing to negotiate on the price. The net result is basically the same from the seller's perspective, although not necessarily for the buyer, and that is a reduction in the net proceeds at closing. But if the seller will gain a little extra in the end, they may be willing to kick in at the beginning.

Return to Top ^

Seller Financing
Occasionally, a request is made for the seller to "carry back" financing or a second mortgage to help facilitate the buyer's purchase of the real estate. In cases where the seller may not need (and sometimes want) all of the proceeds at the time of sale, this can be a good option. An advantage to the buyer is that you may minimize your down payment and still avoid private mortgage insurance thereby saving a little money on payments.

If a carry-back is made a part of your offer, you need to include the financing terms you would like to pay on the second mortgage. The lender in first position usually needs to know and approve of this scenario while underwriting your loan. They may also stipulate certain repayment terms.

Return to Top ^

Cash Offers
If you are able to make a cash offer to purchase your real estate, it's usually a good idea to provide some sort of documentation with your contract to help solidify the powerful offer If you need to liquidate stock, ensure you allow in your time lines the ability to make the conversion and prove funds are available.

Return to Top ^

Other Financing Details in the Offer
The offer should also specify information as to whether you will be obtaining a fixed rate or an adjustable rate mortgage. It should also indicate if you are pursuing a FHA or VA loan.

Return to Top ^

How FHA and VA Loans Affect Your Offer
The Extra Costs to borne by the Seller
If you are pursuing a FHA or VA loan to finance your real estate purchase, you must include that information in your contract offer. This is because these type of government backed loans place additional obligations onto the seller.

Non-Allowable Fees
FHA and VA loans prohibit buyers from paying certain types of closing fees often charged by the lenders, settlement agents, escrow companies, and title companies. These fees are called "non-allowable" fees. They may still get charged, however, the buyer is not allowed to pay them, resulting in the charges going to the seller.

It's always a good idea to get pre-qualified by a lender prior to submitting an offer to purchase a home. At that time, you or your real estate agent can inquire about the lender's fees and which would be non-allowable on these loans.

Since these fees are typically not paid by the seller in conventional financing situation, the buyer's offer needs to indicate this. You may find that the seller is less inclined to negotiate off the asking price in this situation.

Return to Top ^

VA and FHA Appraisals
Home inspections and appraisals on FHA and VA loans are more detailed than when conducted on a conventional loan (and more expensive). The professionals have to have certain certifications and perform additional inspections compared to the typical task. That shouldn't prevent you from seeking out a detailed home inspection. Sometimes the deficiencies found must be repaired prior to the loan closing.

These repair costs are in addition to what would normally be required of the seller, so they may be interested in a maximum repair amount in the contract; otherwise they would be offering a blank check, and they likely aren't interested in that.

Additionally, whatever amount that you enter will most likely affect the seller's negotiation on price. If you put $1000 as an estimate, the seller is probably more inclined to be $1000 less negotiable on the price. If it turns out that no repairs were needed, you may have been able to get the property for $1000 less than what you and the seller agreed upon. A solution to protect yourself is to add a clause in your contract that is worded something like this: "If the required repairs amount to less than the maximum allowed, the excess money remaining will be credited to the buyer."

Return to Top ^

Selecting Service Providers
The Seller Must Agree
The home buying process doesn't occur in a vacuum with only the buyer and the seller. There are many professionals working behind the scenes to make the transaction happen. Since many of these services affect both buyer and seller, there needs to be agreement as to which servicers that are used. Go ahead and request the companies that you are comfortable with, and if you are unfamiliar, your Pensacola realtor can make a recommendation.

Return to Top ^

Escrow and Settlement
An escrow company, or the title company acting as one, serves as an independent third party in the real estate transaction between the buyer and seller. This agent ensures that when you fork over your money that you will get the deed. They will hold your earnest money deposit as well as coordinate the activities that go into getting the real estate transaction closed.

Typically, both the buyer and the seller will pay fees to this escrow or title company. It is necessary to agree on which provider to use within the contract. If you are unfamiliar with your choices, your Pensacola realtor may be able to recommend one.

Understand that the seller may also have a preference to the company and this may result in a point of negotiation, just as everything is in real estate.

Return to Top ^

Real Estate Title Insurance
Title insurance is important to the buyer because they insure you have clear title to the property. If something crops up later, you can go back to the title insurance company to have them correct any of the problems. It is typical for the seller to pay for the owner's policy and hence they may have a preference as to which company is used.
The buyer usually also pays a fee to the title insurance company. This is for the Mortgagee's Policy. This policy insures your lender that there aren't any liens or judgments against the real estate and that the mortgagee will be in first position on the deed in case of default. In other words, if you should sell the property, refinance it, or lose it, their mortgage gets paid first before any other claims against the property.

The lender's policy is cost less money than the owner's policy.

Return to Top ^

Termite and Pest Inspection
As part of the offer, the buyer or the lender may require a termite and/or pest inspection. This is often referred to as a WDO or wood destroying organism report. The inspector not only inspects for termite and pest infestations they also annotate existing damage from termites, water damage, and dry rot. The selection of this company is important to you as the buyer because you want to ensure that your best interest is being served and a good, thorough inspection and report is completed. The seller will care because they may be on the hook to pay for the repairs that were identified.
It's good for you to select this inspector and make it part of your offer. Your Pensacola real estate agent can make some recommendations for you.