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It's a competitive market. I want to make an offer. To sweeten my offer, I'm being advised by my broker to offer 50% down payment of the purchase price. Yet he's saying I can still close by doing 20% down of appraised price, even if it says 50% down in the contract. He mentions that showing I am putting down 50% of purchase price shows I'm more qualified than the next person to buy the property.
So I'm having trouble understanding this concept.
What I do understand is how appraisal amount affects what I put as a down payment. But I'm not making the connection between how offer 50% down payment of the purchase price is connected with anything else. If anyone can explain, that would be really helpful.
To sweeten my offer, I'm being advised by my broker to offer 50% down...
Nonsense.
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So I'm having trouble understanding this concept.
He sounds like a idiot.
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But I'm not making the connection between how offer 50% down payment of the purchase price is connected with anything else. If anyone can explain, that would be really helpful.
There is none. You get it just fine.
If you were paying cash and offering an uncomplicated, minimal inspection, fast closing...
it's still not needed. Flashing a wad is still just flashing a wad.
Depending on price... 1% is almost always enough as pre-inspection "earnest money"
Some markets go a bit higher because of how they handle things... but none are over 10%.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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I'd get a new realtor after that one. You could probably get away with it, but he's asking you to participate in something that borders on fraud. Remember that an offer is an "Agreement to Purchase", a legal document which you will sign. It may not even be helpful if yours is the only offer.
I'd get a new realtor after that one. You could probably get away with it, but he's asking you to participate in something that borders on fraud. Remember that an offer is an "Agreement to Purchase", a legal document which you will sign. It may not even be helpful if yours is the only offer.
He's been really good so I don't know if perhaps I'm just explaining it incorrectly. Here's what he said when I asked how I could make my offer more appealing than my competition:
**Large Down Payment: I would write in your down payment is 50% of the purchase price. You can absolutely close by doing 20% down, even if it says 50% down in the contract (it actually states this in the contract). Showing you are putting down 50% shows you are more qualified than the next person to buy the property. It also shows you are fine if the property appraises for less than the purchase amount – this would all be taken care of because you have a large down payment.
Loans are based on scenerios. If you are putting down 20%, you get a really good rate, If you put down 25% or more, you usually get a little better rate. That’s it. If you put down 50% VS 25%, the only difference is your loan amount would be less - your rate would be the same and the loan program is the same. So, let’s say you offer $800,000 and the property appraises for $750,000 and in your offer, you put that your down payment is 50%. 50% down off of $800,000 is a $400,000 down payment, and your loan would be for $400,000. But, the place only appraised for $750,000 – it doesn’t matter - You are still buying it for $800,000 and still putting down $400,000, and your loan amount would still be for $400,000. It is the same exact scenario for you, because your final loan amount of $400,000 is still over 53% down payment of the appraised amount (750K x 53%) – still meeting the guidelines of the bank’s loan.
It just shows that you can easily afford the house and your lending would be a breeze. Sometimes the lender won't even do appraisals with that amount down. Local lenders here will waive the appraisal.
You are focusing on the details of the lending side of things. Your agent is trying to get you to focus on the psychology of the negotiation, which may or may not have anything to do with reality. 50% down sounds more financially solid to a a seller than a buyer with 10% or 20% down. Your agent is going for an emotional reaction to the numbers.
He's been really good so I don't know if perhaps I'm just explaining it incorrectly. Here's what he said when I asked how I could make my offer more appealing than my competition:
**Large Down Payment: I would write in your down payment is 50% of the purchase price. You can absolutely close by doing 20% down, even if it says 50% down in the contract (it actually states this in the contract). Showing you are putting down 50% shows you are more qualified than the next person to buy the property. It also shows you are fine if the property appraises for less than the purchase amount – this would all be taken care of because you have a large down payment.
Loans are based on scenerios. If you are putting down 20%, you get a really good rate, If you put down 25% or more, you usually get a little better rate. That’s it. If you put down 50% VS 25%, the only difference is your loan amount would be less - your rate would be the same and the loan program is the same. So, let’s say you offer $800,000 and the property appraises for $750,000 and in your offer, you put that your down payment is 50%. 50% down off of $800,000 is a $400,000 down payment, and your loan would be for $400,000. But, the place only appraised for $750,000 – it doesn’t matter - You are still buying it for $800,000 and still putting down $400,000, and your loan amount would still be for $400,000. It is the same exact scenario for you, because your final loan amount of $400,000 is still over 53% down payment of the appraised amount (750K x 53%) – still meeting the guidelines of the bank’s loan.
It sounds like you understand the concept, so what are you asking about? It also sounds like you are willing to pay over the appraisal amount for the house.
It sounds like your Realtor is new or is playing games, in lieu of giving you solid advice (or perhaps he is working for the seller?). Even when a buyer is offering all cash, the seller still doesn't get any more money (although, it does perhaps give the seller a greater sense of assurance that the buyer will close the deal quickly with nominal problems).
The potential danger is that if you claim to be making a 50-percent down-payment (similar to claiming you are a 'cash buyer') as part of your purchase CONTRACT/Agreement, you may possibly limit your flexibility to do otherwise, without being in breach of contract.
An advantage/disadvantage of an 'all cash' or very high down payment(?) is that the importance of the traditional loan appraisal by the bank, can be easily set aside (or ignored). Thus, in a bidding situation, the seller may be able to sell the property for more than the actual appraisal value of the home.
I lost a bid to another who was doing 50% down. I didn't want to do it because I was getting ready to do a remodel and i don't like to stretch so I walked. It took 90 days to close finally and I got a email with would I still be interested the current buyer is having issues. I was in full remodel swing so I passed.
50% down will get you to the front of the line in the sellers eyes. Her agent wanted us in the worse way because we had way better credit and would of closed faster. But I guess that's how it goes sometimes
Put yourself in the seller's shoes. The seller doesn't care how much you put down. He cares about getting the highest possible price for the property, and that's all he (or she) cares about. Buyers may get emotionally attached to a house and behave irrationally, but a seller just wants money. If you "need" to do this for a price war, walk away. The bank knows how much this property is and isn't worth. If anything, they'll fudge on the high side of appraisal to make the deal. They can always turn around and sell the debt tomorrow. Even if you can get a slightly better interest rate on a large down payment, consider the return on parking that money elsewhere. The real bonus from a hefty down payment is not having PMI.
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