Sale Terms

Sale Terms

The more sale terms you accept, the wider your buyer pool will be. Some buyers have their search set up so that properties that don’t accept their financing will not come up in their searches. Some sellers that do have your property come up in their search but don’t accept their financing will not even bother to schedule a showing.

CASH

As they say in real estate “Cash is king.” A cash transaction simplifies everything. Any offer contingent on financing has a risk of falling through if the loan isn’t approved. Because there is no financing with a cash deal, it eliminates that contingency.

  • Can Close in as Little as 3-7 Days

Typically a cash offer is not contingent on an appraisal which is almost always required by a lender. Most real estate deals fall apart because of the inspection or the appraisal.

The one drawback with cash offers is that they are typically are lower offers as cash buyers are aware that a cash transaction is preferred by sellers since there is less risk.

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CONVENTIONAL LOAN

Conventional loans are the most common type of mortgage.

  • 620 Credit Score or Higher
  • 5%-20% Down Payment
  • Typically Closes in 30-45 Days

Since Conventional loans require the buyer to have a higher credit score and more money down with less underwriting restrictions, they tend to be more desirable to Sellers than a government backed loan.

GOVERNMENT BACKED LOANS
Some sellers are reluctant to accept government backed loans such as FHA, VA, or USDA Rural Loans. The main difference between these loans and a conventional loan is that government loans are guaranteed by the government. This means the lender has the government’s guarantee that it will step in and cover the cost of the loan if the buyer is unable to pay or stops making payments.

These loans are not issued by the government. They are issued through the same banks and lenders as Conventional loans. They are only guaranteed by the government.

Some sellers are under the misconception that the appraisals for FHA, VA, or USDA Rural loans are like a detailed home inspection. This is not true. It typically takes the same amount of time for an appraiser to do an appraisal for a conventional loan as it does for FHA, VA, or USDA which is about 30 minutes. The appraiser will flag items like missing handrails, exposed wiring, or other items that are considered health or safety issues. Typically, the appliances, roof, and mechanicals of the property must have at least 2 years of life left on them.

If the appraiser flags an item on the appraisal report, it will need to be addressed prior to closing.

An appraiser can also flag items with a conventional appraisal that the lender will likely require be addressed prior to closing.

Some sellers also believe that government backed loans take much longer to close than Conventional loans which is also not true.

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FHA LOAN

FHA loans are guaranteed by the FHA (Federal Housing Administration).

  • 580 Credit Score or Higher (500 if the buyer puts down at least 10%)
  • 3.5% Down Payment
  • Typically Closes in 40-50 Days
  • Maximum Loan Limit $472,030 for Michigan properties in 2023

FHA requires that all properties meet Minimum Property Requirements which means means it must be habitable. The appraiser will look for any health or safety issues and flag them on the appraisal report. Typically any items that get flagged on the appraisal report will need to be addressed prior to closing.

FHA appraisals stick with the property for 120 days. Meaning, if the appraisal comes in low and kills the deal, the seller won’t be able to move forward with another FHA buyer until the appraisal falls out of FHA’s system 120 days later.

FHA also has a Flipping Rule. The seller must have owned the property for at least 90 days to be eligible for an FHA loan. This includes the date in which the seller bought the property and the date in which the new contract has been executed (not the closing date). If the seller has owned the property for more than 90 days but less than 180 days, the FHA will require a second appraisal which the seller must pay for.

A condo must be FHA approved to be eligible for an FHA loan. CLICK HERE  to lookup a condo to see if it’s FHA approved.

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VA LOAN

VA loans are guaranteed by the VA (Veterans Administration) and  provide flexible, low-interest mortgages for members of the U.S. military and their families.

  • No Credit Score Minimum
  • No Down Payment Required
  • Typically Closes in 40-50 Days
  • Maximum Loan Limit $726,200 for Michigan properties in 2023

VA also requires all properties meet Minimum Property Requirements which means means it must be habitable. The appraiser will look for any health or safety issues and flag them on the appraisal report. Typically any items that get flagged on the appraisal report will need to be addressed prior to closing.

VA appraisals also stick with the property for 120 days. Meaning, if the appraisal comes in low and kills the deal, the seller won’t be able to move forward with another VA buyer until the appraisal falls out of VA’s system 120 days later.

The seller must order and pay for a Wood Destroying Pest inspection which typically costs $100-$200. If treatment is required, the seller will also need to order and pay for the treatment prior to closing.

If the property has a well, a water test is required which the seller typically pays for and costs around $50-$100. If the water quality does not meet the VA guidelines, it will have to be treated and  retested prior to closing.

VA also has a Flipping Rule. The seller must have owned the property for at least 90 days to be eligible for an VA loan. This includes the date in which the seller bought the property and the date in which the new contract has been executed (not the closing date). If the seller has owned the property for more than 90 days but less than 180 days, the VA will require a second appraisal which the seller must pay for.

A condo must be VA approved to be eligible for a VA loan. CLICK HERE  to lookup a condo to see if it’s VA approved.

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USDA/RURAL LOAN

USDA/Rural loans are guaranteed by the USDA (US Department of Agriculture). USDA loans help moderate to low-income borrowers who meet certain income limits buy homes in rural areas. CLICK HERE to see if the property is in an eligible area to quality for a USDA/Rural loan.

  • No Credit Score Minimum (most lenders will require at lease a 640)
  • No Down Payment Required
  • Typically closes in 30-45 Days

USDA also requires all properties meet Minimum Property Requirements which means means it must be habitable. The appraiser will look for any health or safety issues and flag them on the appraisal report. Typically any items that get flagged on the appraisal report will need to be addressed prior to closing.

If the property has a well, a water test is required which the seller typically pays for and costs around $50-$100. If the water quality does not meet the USDA guidelines, it will have to be treated and  retested prior to closing.

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LAND CONTRACT

Land contracts are seller-financed alternatives to traditional mortgage financing. They’re typically used when buyers are unwilling or unable to get a mortgage through a bank or other lender.

Rather than borrowing money from a bank or lender, the buyer makes payments directly to the seller until a specific time period to which the rest of the balance is due or the purchase price is paid in full.

  • Can Close in as Little as 3-7 Days

With a land contract, the buyer does not get full ownership of the property. The buyer is an owner, but they only get “equitable title” of the property. Equitable title is the right to obtain full ownership of property. This is different from legal title, which is actual ownership of property. The buyer will not get legal title until the total purchase price is paid in full.

Land contracts can make property easier to sell because their is no lender involved. The seller decides the credit requirements and down payment amount. The parties can also negotiate the monthly payments, including whether there will be a balloon payment. A balloon payment is an unusually large payment due at the end of specific period. The parties will also agree on the interest rate. However, in Michigan the interest rate cannot be above 11%. It is possible for the interest rate to change over time, but the average interest rate has to be 11% or less.

In general, the buyer is in charge of making all repairs and paying property taxes in most land contracts. Most contracts also say the buyer must get homeowners insurance.

If the seller has a loan or mortgage on the property, most lenders will not allow

Although a land contract isn’t technically a sale, it’s close enough to being a sale that it will trigger the “due on sale” clause in your mortgage. Due on sale clauses say that if you sell your property or an interest in it, the mortgage immediately becomes due and must be paid off in full.

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