Confused by Multiple Offers? Here’s an Easy Guide to Understanding Different Types of Financing

Are there any sellers who don’t fantasize about listing their home and landing the ultimate offer they can’t refuse?

In a dream world, the best offer would be from a buyer who has secured financing and offers thousands above your asking price with no contingencies.

Yet some homeowners must choose from multiple offers, with no clear one that stands out. At that point, you need to start weeding through the pros and cons of each offer. And comparing terms when each buyer offers a different financing package can become a major—and confusing—headache.re there any sellers who don’t fantasize about listing their home and landing the ultimate offer they can’t refuse?

In a dream world, the best offer would be from a buyer who has secured financing and offers thousands above your asking price with no contingencies.

Yet some homeowners must choose from multiple offers, with no clear one that stands out. At that point, you need to start weeding through the pros and cons of each offer. And comparing terms when each buyer offers a different financing package can become a major—and confusing—headache.

To help, we put together this simple guide for how to choose the ideal buyer for your house—and your bottom line.

Ask your agent for help

The first step to navigating multiple offers is to talk to your real estate agent. Agents are familiar with all types of financing and will help you understand the ins and outs of various offers.

But it’s essential to get a few key aspects of each offer down on paper so you can make an informed decision.

“One way to do this is by creating a comparison chart that outlines the different loan products and their respective terms such as interest rates, down payment requirements, closing costs, and the buyer’s [debt-to-income ratio] if needed,” says Adie Kriegstein, real estate agent and founder of the NYC Experience Team at Compass.

By plotting out each offer, you’ll easily be able to see the pluses and minuses of each financing package.

Here’s a breakdown of the most common types of financing.

What to look for in a cash offer

When multiple offers are on the table, choosing a cash offer is often a no-brainer—as long as the price is right.

“Cash is king and comes with assurance the money is there and [the home] typically does not need to pass an appraiser either,” says Jake Northrop, a real estate agent at Northrop Realty in Clarksville, MD.

Cash offers settle more quickly without a mortgage clogging the timeline, but it’s still critical to do your due diligence. Ask the buyer for a proof of funds letter to verify the buyer has the cash to close the sale.

What to look for in a conventional loan offer

If cash is king, the conventional loan is queen.

And conventional loans are also the most common—and preferred—loans as they offer straightforward financing. Most agents advocate accepting them when all other terms of a multiple-offer situation are the same.

“Usually, with conventional financing, you want to look at how much the borrower is putting down on the home—20% or higher is always great to see,” says Northrop.

If you have two offers at the same asking price with the same down payment, you’ll want to see which buyer can offer you the most flexible terms. An example of that would be waiving a home inspection. Or an option that allows you to remain in the home after closing rent-free for a month or two, Northrop says.

Give special financing a chance

Offers with special financing—Federal Housing Administration, Veterans Administration, or U.S. Department of Agriculture loans, for instance—are often considered riskier by sellers because the criteria for loan approval require stricter guidelines for appraisals and inspections.

And so sellers worry that their house won’t meet the requirements. Or they don’t want to spend the money to make repairs or delay closing. (Conventional loans typically don’t have the same strict requirements as long as the home is habitable.)

Yet sellers should give these loans a second chance. In fact, buyers often offer favorable terms to compete against more robust financing.

“FHA and VA loans, in particular, often get overlooked by homeowners because they may have different requirements, but the requirements are often not an impediment to a smooth sales transaction,” says Andy Tillman, a real estate agent at Abundance Real Estate in Milwaukee.

Essentially, these requirements ensure the house doesn’t have health or safety issues that could compromise the buyer’s ability to pay for repairs and the mortgage.

While costly problems such as mold or foundation problems could be discovered, some might be minor, like replacing a torn window screen or repainting lead-based paint that is cracked or chipping.

But it’s important to note that significant safety or structural issues can affect conventional loan financing, too, in which the seller would repair the issues or compensate for them before a deal is done.

Look at the big picture

Finally, evaluate the entire offer as a package and not just the specific aspect of the type of loan the buyer is offering.

“There is a lot more to consider, such as price, timelines, inspections, appraisals,” says Rocky Bowers, an agent at Compass in Bethesda, MD. “And typically, the offer with the fewest contingencies, best price, and least amount of risk to the seller as a whole is the one that ends up being selected.”

Ultimately, the offer you choose should align with your priorities and goals.

Do you want a quick and easy transaction? Or is your goal to maximize profit? Or maybe you want to secure a reliable buyer.

“By carefully considering each offer and weighing the pros and cons, sellers can make an informed decision that meets their needs and preferences,” says Kriegstein.

SOURCE: Realtor