Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
We are planning on putting an offer on a house in a competitive market. We have been approved for financing and have the option of only putting 10% down. We have the cash to put 20% down. We would prefer for various reasons to keep that cash for investing and not tie it up in the house. We would not have to pay PMI either way with the product we are getting.
When we write our offer, I think that sellers will see 20 percent down as a more desirable offer. When we write the financing part of out offer, if we say we will put 20 percent down, are we obligated to actually do that? I am thinking as long as the loan funds, it doesn't matter to the seller.
Or is it really not that big of a deal and we should just go with the 10 percent in the offer?
Are there any pitfalls to this strategy?
Please no lectures on how I must put down 20 percent. We spoke to our financial advisor, and given interest rates, we decided that the money would be better used in other investments.
We are planning on putting an offer on a house in a competitive market. We have been approved for financing and have the option of only putting 10% down. We have the cash to put 20% down. We would prefer for various reasons to keep that cash for investing and not tie it up in the house. We would not have to pay PMI either way with the product we are getting.
When we write our offer, I think that sellers will see 20 percent down as a more desirable offer. When we write the financing part of out offer, if we say we will put 20 percent down, are we obligated to actually do that? I am thinking as long as the loan funds, it doesn't matter to the seller.
Or is it really not that big of a deal and we should just go with the 10 percent in the offer?
Are there any pitfalls to this strategy?
Please no lectures on how I must put down 20 percent. We spoke to our financial advisor, and given interest rates, we decided that the money would be better used in other investments.
Thoughts? Thanks.
How are you getting out of paying PMI if you put less than 20% down?
Your financial advisor makes a profit off of anything you invest through him/her.
A few years ago we had a FA who told us that flipping real estate and buying rental properties was not a "sound way to invest". Guess who was wrong? He hated the fact we pulled all of our money out of the 529's and bought real estate. Nothing in it for him.
I think sellers do look at how much your downpayment is when assessing the strength of an offer, especially in a hot market. 10% down is not that common and to a seller, they may think you are less likely to secure financing than someone who is putting down 20% and may therefore look more favorably at an offer with 20% down. If you say in the offer that you are going to put 20% down but then apply for financing with only 10% down and do not secure it, you potentially could lose your deposit. The offer is a legal document, and the financing structure specified within it form part of the agreement between you and the seller.
Having said that though, if you get your loan funded, the seller's not going to care how you structured it. It only really comes into play if for some reason you fail to secure financing for the house on which you are making the offer.
We closed a couple of weeks ago on a house in Los Angeles, which has tight inventory and lots of buyers, and we had specified 20% down in the offer with a relatively short closing time. We then ended up putting in an application for financing that was 80% conventional loan and 5% home equity line of credit, with the intention of the LOC being zero balance at the start (i.e. we effectively put down 20%, but structured it so that we had funding available to do remodeling at some point in the next couple of years).
We had been preapproved, but there was still a point in the actual loan application phase that it unexpectedly looked a bit shaky (bank was not overly happy about some of the downpayment funds having been in an offshore account for a couple of years). This caused us to sweat a little as we knew there were backup offers in place, so the seller may not have been overly inclined to give us much extension on the finance contingency while we sorted it out, and the financing we applied for was obviously different than what we had agreed upon. In the end, it all worked out for us, but you never know.
Also, we were required to show proof of funds for the 20% to the seller with our offer, so even if you plan to only put 10% down, you may still have to show 20% downpayment in available funds.
You can write 20% dp in the offer, and close with a 10% dp (90% LTV) loan and no one could question it. But if you have applied only for the 10% dp and fail to close, you will have been in breach of contract and could be sued for that.
Chances are you can make app for the 80% LTV and then your lender can give you a 90% LTV loan if they can in fact approve it that way.
Just a little caveat, people often think if they break a contract they will lose their deposit and that's it. In fact if someone is in breach of contract and sued for it, the liability could be much more than the deposit amount.
In Texas, financing is handled as a separate addenda, not the primary contract. What it comes down to is if you have the money to close (don't over-stress your resources). The lender, when doing the financing will be looking at your reserves, income, etc.
A seller will also look at whether the buyer is asking for concessions, if FHA, VA, which involves additional underwriting items, possible mandated repairs and mandated seller concessions.
Otherwise, unless the offer is cash, basically, not a big difference to the seller if offering 10% or 20% down.
Here's the problem.....you apply for the 90%, but for whatever reason and in the 11th hour the lender says, nope, can't do it, need 20% down. The lender must re-disclose and get the loan reapproved. You would not make your closing date and would be in default of your own doing.
Make sure loan approval occurs quickly and well in front of the deadline and you should be fine. If your lender thinks you're OCD, point out their role in your dilemma.
This answer most likely varies by market, but I don't think it really matters to a seller whether you're putting down 10% or 20%, as long as you can get financing. In a competitive market, I would look at other aspects in the offer that makes yours stronger than the competition (higher earnest, closing date that favors sellers, etc).
The issue here is OP is in a competitive market, which indicates multiple offers. A seller in that type of market is going to be looking at the buyer financing as a determining factor (among many, as already pointed out); they won't want to be locked in with someone who looks shaky to close. So it really does matter to the seller whether OP is putting 10 or 20% down; that being said, if OP puts 20% in contract and later gets alternative 10% down funding, it won't matter to the seller unless OP is denied funding and can't close.
As everyone else says, it depends on the market. But I would say that sellers DO look at the financing - it's just that what they consider strong is all relative. As a seller under contract to sell a starter (or down-sizer) home in what I might call a "balanced" market (not quite buyer's, not quite seller's), we definitely looked at financing and other issues relating to the structure of the deal. This is the second go-around with this property (major problem to be repaired) and third offer. The first two offers wanted concessions and one needed 100% financing, and one was only putting 3% down. We were unhappy with both those scenarios but of course went with the people putting something down. This time around we're much happier because we're dealing with down-sizers with a large down payment and no concessions requested.
Not everyone can expect 20% down but it sounds like in a hot market, people can, and have their pick of offers. In any case, I think most sellers are going to weigh the strength of the financing. Even if you only have one offer in hand, is it worth it to effectively pull the house from the market and lose that selling time, only to find out your buyer can't get financing?
10% might seem strong enough to some people, especially if you're not asking for anything else like help with closing costs.
I also was wondering about how someone wouldn't pay PMI if they only put down 10%. OP says it's due to the "product" he's getting. My understanding was that one pays PMI based on sale price, not appraised value. So, even if something is under-priced and appraises for more such that the financed amount is actually less than 80% of the appraised amount, PMI is still required. Am I wrong? OP did you mean something else about the "product" you're getting? (And yes, I know that in a hot market, the "market" usually corrects the situation so under-priced houses don't go under contract under-priced. But this can happen elsewhere, in rural areas, never many buyers, seller wants to sell quickly, etc..)
How are you getting out of paying PMI if you put less than 20% down?
Quote:
Originally Posted by cowbell76
I also was wondering about how someone wouldn't pay PMI if they only put down 10%. OP says it's due to the "product" he's getting. My understanding was that one pays PMI based on sale price, not appraised value. So, even if something is under-priced and appraises for more such that the financed amount is actually less than 80% of the appraised amount, PMI is still required. Am I wrong? OP did you mean something else about the "product" you're getting? (And yes, I know that in a hot market, the "market" usually corrects the situation so under-priced houses don't go under contract under-priced. But this can happen elsewhere, in rural areas, never many buyers, seller wants to sell quickly, etc..)
An 80-10-10 gets people out of PMI. It's a "product" that's been around for decades.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
