I’ve blogged before about the lengths sellers will go to these days. An older couple offered potential buyers their money back when the couple died. Others offered cars. Trips. Super Bowl tickets.
Then there are more practical ideas: like sellers offering to “give” prospective buyers part of the down payment. Fellow Phoenix-area blogger Greg Swann wrote Monday in the Arizona Republic that creative financing can help less-qualified buyers purchase your home. Creative strategies like carrying back a note for a third mortgage are more risky, but, Swann says, “the marginal difference can be moot if the house wouldn't sell otherwise or if it sells months later for a much lower price.”
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Swann also mentions “another creative financing avenue” – Down Payment Assistance. He calls it a “shell game” and “Psycho Lender Math at its worst” but says that it could benefit sellers if it helps them sell their home while others sit on the market.
Down Payment Assistance, in essence, is like a price reduction on the home. But unlike a price reduction, it may help a less-qualified buyer qualify for the home purchase, where he couldn’t otherwise (if he has no money for a down payment, for example).
It works like this: sellers sign up with a Down Payment Assistance program like AmeriDream or Nehemiah. Sellers pay the program a fee (around 4% of the sales price of the home) and the program contributes a portion of the sales price to the buyer’s down payment and closing costs. The money is considered a grant, so the buyer doesn’t have to pay it back.
Low down payment loans are becoming more controversial. The FHA Modernization plan includes a provision to reduce the minimum down payment required by the FHA to 1.5% from 3% -- but the plan is certainly not without its detractors.
For homeowners who purchased homes with little or no money down, when market values decline, they can be left owing more than their homes are worth. (When buyers make a 20% down payment, in contrast, the market would have to decline more than 20% for the buyer to owe more than the value of his home.)
Yet on the other hand, programs that help buyers purchase homes with little or no money down has allowed scores more Americans to buy into the quintessential American dream: home ownership. And that’s a good thing, right?
If you’re a seller, a tool like Down Payment Assistance may help you sell your home more quickly – and for a higher price – than if you didn’t offer it. And while it really amounts to a discount on the home price, you still may be better off. But it can be dicey territory, so hire an agent experienced with those kinds of programs and tread carefully.
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