A Financial Strategy To Help Sell Your Jumbo Loan Sized Home Or Listing

By
Mortgage and Lending with Cardinal Financial Company, Limited Partnership NMLS#386911

  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? Line of Buyers

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
OK, you say, that is great for the buyer, but how does a seller carryback benefit me? Here's how:

  • 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
Now that we have the benefits of a seller carryback, let's talk about implementation. First, let's talk about what the first mortgage lenders usually require with a seller carryback:

  1. The term must be at least for 5 years
  2. There must be monthly payments (no deferral of payments)
  3. The payments must at least cover the interest
  4. 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)
How do I make myself comfortable, you ask, that this buyer can make the payments? Well, the first mortgage lender will only approve the buyer if they are comfortable with the borrower's ability to pay. There is comfort in knowing that, especially today when almost all of the loans being approved are with full documentation.

To make yourself more comfortable, you can write into your contract that you reserve the right to have a mortgage originator of your choice review the buyer's loan application and package. Be specific - ask to review current paystubs, two years of tax returns and w-2s, the most recent two months of bank statements, and a credit report. 

Staging your home, marketing it with massive exposure, and making it accessible are all important factors in getting your home sold.Sold Home Equally as important, and I think even more important in these days of difficult to obtain mortgage financing, is to have a financing strategy in place to make it easier to buy for a larger number of people. The seller carryback is one tool, the seller buydown is another.

Implement these strategies and sell your home fast for top dollar!

 

Posted by

Would you like to talk to Phil - call or text (650) 222-0386 
Phil Caulfield NMLS #386911 has been helping people obtain mortgages since 1985. The views, articles, postings, and information listed at this website are personal and do not necessarily represent the opinion or the position of  Cardinal Financial LLC.

 

 

 
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Re-Blogged 4 times:

Re-Blogged By Re-Blogged At
  1. D B 03/01/2010 11:46 AM
  2. Joseph J. Chang 03/01/2010 12:27 PM
  3. Lane Bailey 03/01/2010 01:01 PM
  4. 03/01/2010 01:02 PM
  5. Cindy Lollis 03/06/2010 11:06 AM
Topic:
Real Estate Sales and Marketing
Groups:
Realtors®
Mortgages
Everything California
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Tags:
seller financing
seller carry second

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Rainer
289,775
Daniel J. Hunter
REALTOR® - New Port Richey, FL

now that was a GREAT READ.  Thank you for posting this Phil. now I have to subscribe to you.

Mar 01, 2010 09:56 AM #3
Rainmaker
2,559,507
Rebecca Gaujot, Realtor®
Vision Quest Realty - Lewisburg, WV
Lewisburg WV, the go to agent for all real estate

Phil, very creative to help both the seller and the buyer.

Mar 01, 2010 10:24 AM #4
Rainmaker
160,048
Linda Hinson
S & L Properties - Calabash, NC

I have done this before where I carried 2nd and deferred 1st payment for two years so both could graduated from school.  I loved it...great price...great rate...and I hoped they did miss a payment...not wishing bad things on them but it would have been good for me.  I had a great experience.  Also, I love lease with option.

Mar 01, 2010 10:34 AM #5
Rainmaker
1,826,627
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

This is a very good suggestion and a well presented post. I have a large listing and I will have to suggest to the seller he consider doing this.

Mar 01, 2010 10:37 AM #6
Rainmaker
1,217,765
Chuck Carstensen
RE/MAX Results - Elk River, MN
Minnesota Real Estate Expert

I used to see this all the time. I dont see it now...but its something to keep in mind.

Mar 01, 2010 12:37 PM #7
Rainmaker
564,419
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

Hi Phil -- Great advice.  Being creative and looking at all possible options helps to cast a wider net, which is needed to maximize market value.

Mar 01, 2010 12:54 PM #8
Ambassador
891,536
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

Great post and this can be a great benefit for both buyers AND sellers to get what they are looking for. 

Mar 01, 2010 12:59 PM #9
Rainmaker
359,256
Aaron Vaughn, REALTOR© 512-845-4204
eXp Realty - Canyon Lake, TX
My knowledge is your power | eXp Realty

Phil:

Thanks for this post; it is genius, and something I've been doing and recommending for years.

Mar 01, 2010 03:43 PM #10
Rainmaker
98,263
Chuck Ward Local Video Marketing
Florida Mobile Fusion Mobile, Marketing, Local SEO - Tampa, FL
SMS Marketing, Google Plus Local Pages

I am not aware of anyone (bank wise) allowing a seller carryback -- most of the major lenders dont allow this.  Do you have lenders that do?

Mar 02, 2010 01:22 AM #11
Rainmaker
550,430
Martin Kalisker
Greater Boston Association of REALTORS - Boston, MA
Professional Standards & Legal Assistant

seller carrybacks are often subordinate to the first lien holder.  in today's economy, why would anyone want to be in that position?  A better idea is to promote assignable FHA mortgages - still low rates and much less hassle if the new buyer doesn't meet current FHA underwriting guidelines.

Mar 02, 2010 01:34 AM #12
Rainmaker
1,899,995
Lottie Kendall
Compass - San Francisco, CA
Helping make your real estate dreams a reality

Phil, congrats on the feature! You wrote a clear, concise post about seller-carrybacks; I've bookmarked it to share with sellers. Thanks!

Mar 02, 2010 01:49 AM #13
Rainer
287,396
Mark Montross
Catamount Realty Group - Burlington, VT
Listing and Buyer Specialist

Phil, thank you very much for this information. I am new in the business and found it to be very helpful.

Mar 02, 2010 02:01 AM #14
Rainer
37,038
Gary Steuernagel ASSOC. BROKER, ABR, CRB
Keller Williams Southwest - Sugar Land, TX

Regarding number 12 Weichert Realtors, FHA has a maximum amount that they will insure that is below the "Jumbo Rate" threashold, FHA isn't a solution for propertys in this price range. 

Depending on your market, if  values are falling, and your the not the primary mortgage, you might discover in a default (forclosure) situation that the value of the house won't be sufficient to pay off both the primary loan and the amount carried by the seller.   At that point the seller looses out.

Mar 02, 2010 02:30 AM #15
Rainer
37,038
Gary Steuernagel ASSOC. BROKER, ABR, CRB
Keller Williams Southwest - Sugar Land, TX

As an additional thought, FHA also must be the primary mortgage, they will not approve being in  a subordinated role.

Mar 02, 2010 02:35 AM #16
Rainmaker
198,128
Phil Caulfield
Cardinal Financial Company, Limited Partnership - Burlingame, CA
I Get The Loans Done That The Big Banks Don't!

Daniel - thanks, I will subscribe to you also!

Rebecca - yes, we need to be creative, especially with financing for expensive  homes.

Linda -  you just gave me another idea for a blog post - lender requirements for a lease option. Thanks!

Lisa - Watch out for the Caulfields in the Chevy Chase area - those are my cousins!

Chuck - We're seeing some old tools come back, such as the seller carryback and buydown.

Chris - I don't think many sellers realize this is a way to increase the market value of their home, but I think it is a way because of the tough jumbo loan market we face.

Lane and Aaron - thanks for the compliments!

First Interstate Financial - Yes we do have banks that allow seller carrybacks here in CA.

Weichert Realtors - This article was directed more at jumbo financing, not FHA

Lottie - thanks for the compliment! I'm going to be at your office tomorrow for a presentation. Are you going to be there?

Mark - ActiveRain is a great way to educate yourself.

Gary - You are right, it is a risk, so this risk has to be considered carefully based on the buyer's offer.

Mar 02, 2010 02:47 AM #17
Anonymous
Sam (homeowner)

Same principle as cosigning a loan. Only do it if you are prepared for the borrower to default.

You first.

Mar 02, 2010 06:32 AM #18
Anonymous
Michael Dorr



It works. 1.) Perhaps you want to have someone service the note for you. It is well worth the fee. 2.) Make sure you have x amount of dollars in reserves as you can cure a foreclosing first mortgage and the begin foreclosure on your second.

Mar 02, 2010 06:33 AM #19
Rainmaker
1,899,995
Lottie Kendall
Compass - San Francisco, CA
Helping make your real estate dreams a reality

Phil, I'm showing properties to a buyer tomorrow when you'll be at my office. Hope you get a good turnout of interested agents.

Mar 02, 2010 08:54 AM #20
Rainmaker
198,128
Phil Caulfield
Cardinal Financial Company, Limited Partnership - Burlingame, CA
I Get The Loans Done That The Big Banks Don't!

Sam - I disagree, it's not the same as co-signing a loan. You have the house as security. When you co-sign a loan you are the debtor also.

Michael - Great point!

Mar 03, 2010 03:05 AM #21
Rainer
135,682
Matt Robinson
Professional Investors Guild - Pensacola, FL
www.professionalinvestorsguild.com

Great post!  I'm very familiar with seller carrybacks and have done them on investment properties that I've sold, but never really thought about how it could work on a high priced home to keep the buyer out of a jumbo product.  Thanks for the insight!

Jun 17, 2010 11:30 AM #22
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Phil Caulfield

I Get The Loans Done That The Big Banks Don't!
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