Are you aware how difficult it is to get a jumbo loan these days? If you are selling your jumbo loan sized home or listing one, what are you doing to make it easier for a long line of qualified buyers able to buy your home?
One strategy you may want to consider is a seller carryback. A seller carryback is financing by the seller, usually in the form of a second mortgage.
The easiest way to understand how a seller carryback works is to look at an example. Suppose you own a home worth $1 million. You owe $300,000. You plan to buy a new home for $1,500,000, and make a 25% down payment of $375,000.
Assuming a sale price of $1 million minus 7% selling costs, you net $930,000. If you pay off your $300,000 loan, you can net $630,000. You only need $375,000 for the down payment, plus $25,000 for closing costs, moving expenses, and a little vacation after all this stress! Now you have $230,000 left over. What are you going to do with these funds?
Suppose you offer a $230,000 seller carryback second mortgage. How does that benefit a buyer:
- A smaller down payment may be needed
- It takes the financing out of the jumbo category and puts it in the conforming category, which is easier to obtain
- It gets rid of the need for private mortgage insurance, which is an additional monthly cost to the buyer
- The buyer does not have to qualify for private mortgage insurance, which is very difficult these days
- You get a higher yield than if you put the $230,000 in a low yielding account
- You have opened the door to a larger pool of qualified buyers to purchase your home, therefore
- You may be able to sell your home for a higher price because you have reduced the toughest barrier to purchase a home today, financing
- The term must be at least for 5 years
- There must be monthly payments (no deferral of payments)
- The payments must at least cover the interest
- The interest rate charged must be a "market" rate (I interpret this to mean not way lower or way higher than the current market rates)