Buying or Selling, is the Mortgage Your Only Option?
Today, thanks to the ever-increasing use of the internet to seek
out homes for sale, and the increased participation of
homeowners in the buying and selling process, there is greater
interaction between the buyer and seller. Not only is this good
for public relations, it is also an excellent opportunity to
explore other funding options, for the buyer and for the seller.
It is normal on the part of the buyer to assume their only
option when purchasing a home is to obtain a mortgage, but the
traditional lending process. This is not always the case, and
today more than ever, buyers and sellers are coming together
with creative and accommodating ways to affect the purchase, or
sale, of the home depending upon your status as buyer or seller.
Quite often, individuals interested in purchasing a home lack
the 20% down payment often required from the lender. Provided
the seller has established equity of the home, there are other
options for the buy and sale agreement. Seller financed
mortgages are the most common alternative mortgage option
exercised; seller financed mortgages however, are not the only
option that can be considered. In this article, were going to
take a look at some of the alternative mortgage options that are
rarely exercised, but that do provide tremendous benefit to the
buyer and seller.
As a seller, the conditions must exist that allow you to offer
the buyer alternative options. Your mortgage balance must be
considerably less than the fair market sale price or your hands
are basically tied. Imagine a scenario: you're ready to sell
your home, the buyer is ready to purchase your home, and they
simply do not have a 20% down payment. What they do have is a 5%
down payment, and the desire to work with the seller and the
mortgage lender. You're asking price for the home is $80,000 and
the appraised value of the home is $85,000; your existing
mortgage is $50,000 and the lender requires the proposed buyer
to provide a $16,000 down payment. How can a solution be
reached? If you, as the seller are willing to take a second lien
on the property, there is a workable solution. The fact that the
home appraises for more than the asking price, automatically
provides the buyers with a $5,000 level of equity, so they only
need $11,000 more to reach a 20% down payment. They have $4000;
in order to accommodate the buyers, you could accept $74,000 in
upfront mortgage money from the lender, and take a second lien
on the $6000 difference. This method works only if you're
willing to take the second lien, and the buyers are credible and
reputable individuals.
Taking second liens or second mortgages are increasing in
popularity as a means to sale increasing value real estate in
today's rapidly expanding market. There are other spins offs
from the basic formula described, however the scenario above is
the most common and provides the buyer and seller with the basis
for expanding with creative add- ons. Of course, the seller
financed mortgage is still the meat and potatoes of the
alternative financing industry. How does the seller financed
mortgage work? Generally, it works in this manner: if the seller
owns the home outright he or she may choose to finance a
mortgage for the buyer, and set up an amortized loan. Thanks to
the readily available personal computer, loans can be
constructed that would have only be available via an accountant
or lending institution, 20 years ago.
Of course, how you decide as a buyer or seller to ultimately
close a deal, will depend on many factors, this may be just one
of the more important aspects. How well you know each other,
credit ratings, and the dollar value of the mortgage will also
affect your decision.
Regardless of the final decision, the opportunity exists to
explore other avenue other than the traditional mortgage lending
institutions, or mortgage companies. And, sometimes, you never
know, the deal from the seller financed mortgage may open more
doors than just a mortgage for homeownership!