Seller financing for down payment assistance is an under utilized option for helping to sell homes and provide lower monthly payments to Buyers. It also helps avoiding private mortgage insurance when used properly. Assuming the Seller has the additional equity it can also provide extra income as an investment.
If a potential Buyer can come up with a 5% down payment of their own funds the Seller can take back a private second mortgage for 15% and the Buyer obtains an 80% first mortgage from a traditional lender. The Seller is still allowed to contribute 3% of the sales price towards closing costs.
As an example: Sale price is $200,000. Taxes are $300.monthly and homeowners insurance is $60. monthly. For a traditional transaction the Buyer puts down 5%($10,000) for a $190,000. loan. The payment breakdown is as follows:
Principle and interest @ 4.5% $962. PMI $180. taxes/insurance $360. TOTAL $1502. monthly.
If the Seller takes back a 2nd mortgage for 15%($30,000 @6%)and the first mortgage is $160,000. the payment breakdown is:
Principle and interest @ 4.5 $810. taxes/insurance $360. 2nd mortgage $180. TOTAL $1350. monthly. NO PMI!!
Remember the Seller can also still contribute up to 3%($6000) of the sales price towards closing cost. The Buyer can get into this house for a total of $10,000. assuming the closing cost in your area can stay under $6000.
In the first example the Buyer would need 2 months of payments as reserves and an annual income of $62,000 a year to qualify.
In the second example the Buyer doesn't need reserves and the annual income to qualify is now $49,000.!!!
In CLOSING(our ultimate goal) remember there are a variety of options still out there at our disposal to help put a transaction together and sell more homes. Your mortgage specialist will be able to assist you with the tools necessary to do this.
Comments(13)