When you want to submit an offer on a home for sale, your real estate agent will help you write the offer. In California, buyers use the 8-page California Residential Purchase Agreement to present offers to sellers.
While finding a home is a large part of the real estate agent’s job, a good agent will speak the language of real estate contracts and help buyers present smart offers. That is to say, offers that limit the buyer’s risk and protect the buyer’s best interests. In this article, I’ll explain how to limit your risk by specifying the interest rate of your loan.
Specify Your Loan’s Interest Rate
In section 3 of the California Residential Purchase Agreement, the buyer presents the details of their financing terms to the seller. You specify your first loan’s interest rate in section 3.C (1) – see the excerpt of the contract below.
When you present an offer, you want to include a pre-approval letter from your lender as proof you can obtain financing. In this letter, the lender will state the approved loan amount and interest rate. The thing is, interest rates change on a daily basis and some pre-approval letters last up to 90 days. So, by the time you receive an accepted offer and enter escrow, the interest rate may have risen.
As a buyer, you want to know your maximum monthly mortgage payment. Your agent can help you estimate monthly payments based on a purchase price and interest rates. A higher interest rate may push you over your threshold and make the house too costly.
What you want to do is enter in an interest rate in section 3.C (1). By doing so, you protect yourself in case the interest rate comes in too high and you want to cancel the contract. If you leave this area blank, your loan’s interest rate is not a contingency of the contract and you will have to take the prevailing rate or risk losing your initial deposit. There are other contingencies that will allow you to cancel the contract. This is just one way to protect a buyer’s best interest, which is my job when representing you.