photo credit: TheTruthAbout…
Sea of homes for sale
Trying to sell your home in the Twin Cities and finding a myriad of sale signs, many are especially if you have a lot of bank owned homes around the area. Lenders are being almost ruthless these days trying to unload inventory by discounting homes by as much as 30% in some areas. It’s important to know your options when it comes to selling your home in case a buyer finds your home and needs a little creative financing.
Creative financing is alive and well again these days, it was once popular back in the 80’s and 90’s when interest rates are so high. It is different this time around because interest rates are historically low and might go even lower, but financing for some remains a problem.
What is Creative Financing
Is a way to to overcome affordability options when it comes to providing buyers different ways to purchase a home. It is a way to provide the buyer, seller and lender to the table that might be a little bit different than the traditional way. Creative financing can be overlooked by most and to be quite honest is often misunderstood.
All players have to be on the same page to try and determine what financing options will work best for the transaction. Sellers are most interested in bottom line, buyers are most interested in monthly payments and affordability and lenders want minimal default along with interest rate that will let them profit.
So what are they
Here are some examples in creative financing for sellers in what sellers can do to help out in the transaction.
- Seller Contributions is probably the most basic form of creative financing. It includes options like paying for buyers closing cost or a down payment. Sellers can typically contribute up to 3% for closing costs and 3% of sales price for a down payment. These percentage can vary depending on the lenders, down payments, etc. One thing to note is contributing to the down payment or closing costs, it might affect the appraisal and then other options might need to be looked at.
- Seller Funded Permanent Buydown buys down the interest rate for the buyer over the entire life of the loan. Even though interest rates remain low this is still important negotiating tool because the savings over the life of the loan is significant in interest payments.
- Seller Funded Temporary Buydown buys down the interest rate for the buyer for the first couple of years of the loan.
- Owner Financing a great option if you own your home outright but understandably that most homeowners don’t like to play the role of the bank. The big upside is that the seller can turn their equity into a nice little return on investment because they are collecting a monthly payment. It is attractive to buyers for a few reason, interest rates might be lower, they might have less than stellar credit and can’t get a loan but have money. Something might have happened in the past where they are still repairing credit and it would be up to the seller to determine credit worthiness.
- Contract for Deed is essentially the same as owner financing except that ownership of the property does not convey to the new owner until the entire price is paid in full.
Some different options to get you over the hump when it comes to finding and securing a buyer for you home that is other than traditional.
