For sellers who have worked tirelessly to prepare their homes for market, the receipt of an offer from a prospective buyer can seem like crossing the finish line in a marathon. Getting an offer is an important component in a successful sale, but it does not mean the end of the home selling process is here just yet. Instead, getting an offer is the time when sellers must make smart decisions to ensure that the offer they accept is the right one to help them achieve their end goal of getting their home sold, with a purchase price and terms that best fit their needs and situation.

One of the most important things for sellers to consider when presented with any offer from a buyer is how the buyer proposes to pay for the home. While cash can be the best option for a seller to see on the purchase offer, cash sales for real estate currently account for only about 23% of homes sold in the United States, according to recent figures. So chances are good that most home sellers will be faced with an offer in which the buyer uses one of the following types of home mortgage options. 

FHA Home Loans

Government-backed home loans are popular with buyers because they offer perks, such as small or no down payment options. Federal Housing Administration (FHA) home loans offer the buyer an opportunity to make a very small down payment, usually 3.5% of the purchase price of the home. Additionally, buyers who may not be able to get some other types of loans due to low credit scores or other issues may still be able to get approved for an FHA home loan, although this may require paying up to 10% down. 

Sellers who are presented with an offer specifying FHA financing should also know that there will be a more stringent FHA appraisal process done on their home. This appraisal process can result in the sellers being asked to pay for any repair issues noted on that appraisal. In addition, sellers must also know that FHA loans allow sellers to pay for a significant portion of the buyer’s closing costs. Sellers must remember these potential costs when negotiating price and terms with any buyer using FHA financing, to ensure that their proceeds from the sale is sufficient for their needs. 

VA Home Loans

Like the FHA loan, mortgages issued through the United States Department of Veterans Affairs (VA) are also government-backed, however a VA loan offers most buyers who use them the chance to put 0% down. Buyers do not pay private mortgage insurance and instead pay a VA funding fee. Like the FHA home loan, the VA home loan:

• allows buyers to have somewhat lower credit scores than other loans.
• uses a VA appraisal process that can result in sellers having to pay for repairs before closing.
• allows buyers to ask sellers to pay a portion of their closing expenses and some other costs.

USDA Rural Development Home Loans

While typically encountered less often than the FHA or VA loan, United States Department of Agriculture Rural Development (USDA RD) loans are popular with buyers and sellers need to know about them. Because they are funded through the USDA, there may be longer-than-usual wait times for these loans to fully fund, which can sometimes create longer-than-average wait times to close.

In addition, these home loans have income guidelines and use a stringent home qualification process that may result in sellers being asked to make repairs and upgrades they may not have considered doing before selling. USDA RD loan guidelines allow buyers to ask sellers to pay for:

• some or all of the buyer closing expenses, up to 6% of the purchase price.
• repairs or upgrades required after the RD appraisal.
• the upfront guarantee fee of 2% of the loan amount.

Conventional Financing

Conventional financing is used by most home buyers today and is typically a fixed, or adjustable rate mortgage that conforms to standards set by Fannie Mae and Freddie Mac. Because it is not guaranteed by government agencies as FHA, VA, and USDA RD loans are, it can be used to purchase most any type of property, including second homes or investment property. While buyers can ask seller to pay a portion of their closing costs, usually up to 6% of the purchase price, the appraisal used for the purchase is a standard property appraisal for the purpose of determining loan value. 

Sellers should remember to take the time to discuss all the details presented in buyer offers with their real estate professional, especially those concerning the buyer’s choice of financing. By taking the time to thoroughly understand what each type of buyer financing can mean for them, sellers will be better able to make the right choice for their situation.