Putting your home on the market requires a lot of hard work. Additionally, as a seller, you will need to make some decisions after it is listed and offers begin to come in. One of them might be the kind of financing you’re willing to take: VA, FHA, or conventional. According to the National Association of Realtors (NAR), in 2020 – 62% of home buyers used conventional loans. Read on to see why some sellers prefer conventional financing and what you should consider when accepting offers.
Buying a home is a thrilling adventure but navigating the competitive market can be a daunting task. Sellers often receive multiple offers, leaving hopeful buyers wondering how to make their bid stand out. Well, wonder no more! This guide will unveil the secrets of why sellers favor conventional buyers, giving you the edge you need to snag your dream home.
Why Conventional Loans Make Sellers Swoon
Conventional loans are the rockstars of the mortgage world, adored by sellers for several reasons:
- Faster Closing Times: Conventional loans typically close faster than government-backed loans, like FHA or VA loans. This means a quicker sale for the seller, allowing them to move on to their next chapter sooner.
- Lower Risk of Financing Falling Through: Conventional loans often require higher credit scores and larger down payments, making buyers less likely to default on the loan. This provides sellers with greater peace of mind and a smoother transaction.
- Fewer Appraisal Concerns: Conventional appraisals are less stringent than those for government-backed loans, which means there’s a lower chance of the appraisal coming in lower than the asking price. This protects sellers from potential financial setbacks.
- Less Likelihood of Repair Requests: Government-backed loans often come with requirements for repairs, which can delay the closing process. Conventional loans are more flexible in this regard, reducing the chances of unexpected delays and complications.
Understanding the Seller’s Perspective
Putting yourself in the seller’s shoes can help you understand their preferences:
- They want a quick and hassle-free sale.
- They want a buyer who is financially secure and less likely to back out.
- They want a smooth closing process without any unexpected surprises.
Understanding these needs will help you modify your offer so that sellers find it more enticing.
Boosting Your Offer’s Appeal
Here are some tips to make your offer stand out:
- Get pre-approved for a conventional loan. This shows the seller you’re serious and financially prepared.
- Offer a larger down payment. This demonstrates your financial stability and reduces the seller’s risk.
- Waive contingencies whenever possible. This shows flexibility and reduces the chances of the deal falling through.
- Write a personal letter to the seller. This can help you connect with them on a personal level and make your offer more memorable.
Remember, it’s not just about the price. You can improve your chances of winning the bidding war and obtaining your dream home by comprehending why sellers prefer conventional buyers and taking action to allay their concerns.
So go forth, armed with knowledge and confidence, and make that winning offer!
Conventional Home Loans Close Slightly Faster
In an April 2021 article by Forbes, conventional loans closed three to four days faster than FHA and VA loans. Here are the numbers:
As you can see, that’s not a big difference. It’s important to remember that the statistics above covered the period from March 2020 to February 2021, or the pandemic. So, those times could be longer than normal.
Ellie Mae’s Origination Insight Report has stats from September 2019 through January 2021. Take a look.
|
Loan Type |
Days to Close |
|
Conventional Home Loan |
54 |
|
FHA Home Loan |
61 |
|
VA Home Loan |
61 |
So, conventional loans do close faster, but not by much. Although if you’re in a big hurry, accepting an offer with conventional financing could be your best option.
Conventional Loans Have a Higher Close Rate
Now let’s talk about which type of mortgage is more likely to make it to the finish line. Ellie Mae’s Origination Insight Report has stats from September 2019 through January 2021 for the percentage of purchase loan applications that closed from the previous 90-day cycle.
|
Loan Type |
% closed |
|
Conventional Home Loan |
79.9 |
|
FHA Home Loan |
76.6 |
|
VA Home Loan |
77.8 |
From these percentages, conventional loans do have a higher close rate especially compared to an FHA loan.
Of course, there are a variety of reasons why a loan may not close, and the borrower’s choice of home loan product may not be one of them.
Here are some of the top reasons why a loan might not close.
- Inspection shows severe termite damage
- The home inspection uncovers other issues
- The appraisal comes in too low
- The title isn’t clear (i.e., liens, judgments, etc.)
- Buyers or sellers change their mind
- Natural disasters occur (fires, earthquakes, hurricanes)
FHA vs. Conventional – What do Sellers want?
FAQ
Why do sellers prefer a conventional loan?
Why would someone only take a conventional loan?
Why do realtors prefer conventional loans over FHA loans?
What is the purpose of a conventional loan?
Can you sell a house with a conventional loan?
You might even command a higher sales price as your assumable loan could provide the buyer with significant monthly savings. But while this is possible with FHA, VA, and USDA mortgages, most conventional loans do not allow for assumption. A couple of alternative strategies for sellers with conventional loans include:
Is a conventional mortgage right for You?
Conventional loans generally offer lower costs than other loan types, and if you meet credit score requirements and want a down payment of as low as 3%, a conventional mortgage might be the best solution for you. To find out what types of financing you qualify for, start the mortgage approval process today.
Are conventional mortgages assumable?
Conventional mortgages are not generally assumable. But in most cases, government-backed loans are. You can usually assume a seller’s FHA, VA, or USDA mortgage. For most buyers, an assumable FHA loan would be the top pick, as VA and USDA loans have more stringent requirements.
What is a conventional loan?
These loans are processed just like our conforming loans, so you get the same consumer protections with a much higher loan limit. Like FHA loans, conventional loans are available as fixed-rate or adjustable-rate mortgages (ARMs).