You already know the current home “buyer’s market” (with more homes listed for sale than there are active buyers searching for residences) in most cities is a great time to purchase a home.
There is little competition from other buyers. Motivated sellers are setting realistic asking prices. In other words, it’s a more normal home sale market as compared to the record-breaking volume of the last few years.
Purchase Bob Bruss reports online.
But there’s another reason to buy a resale house now. Anxious sellers are offering sales incentives. A few offer vacation trips, higher sales commissions to buyer’s agents, and even automobiles as inducements to realty agents and their buyers.
However, there is one sales incentive that most listing agents and home sellers forget to offer. During the last five years, the “seller’s market” in many cities (with fewer homes for sale than there were qualified buyers) usually meant all-cash sales.
Buyers could easily get new mortgages at low interest rates. But those days have changed, as mortgage rates have increased, and many institutional lenders have toughened their lending rules.
Yet there is still one home mortgage source available in virtually every community that listing agents, home sellers, home buyers and buyer’s agents frequently overlook.
THE EASIEST, LEAST EXPENSIVE WAY TO FINANCE A HOME PURCHASE. Especially if you are a “cash challenged” or “credit challenged” home buyer, you will love this finance source. Not every resale home can be financed using this source, but all you need is one.
This under-used home mortgage finance source is the home seller.
With more than 50 percent of U.S. homes owned free and clear with no mortgage, those homes are the best candidates for seller financing. Smart home purchasers ask their buyer’s agents to search the local MLS (multiple listing service) listings for homes listed with no existing mortgage. Those sellers are the best prospects for seller carryback mortgage financing.
Having bought dozens of investment rental houses with seller financing, my best experiences have been with motivated retiree sellers who need more retirement income.
Instead of sellers taking an all-cash sale and parking the cash in a bank or mutual fund earning around 5 percent interest, suggest the seller of a free-and-clear home carry back the mortgage at 6 percent. That’s a “good deal” for both seller and buyer.
Whenever possible, try to meet the home seller to establish credibility before presenting a purchase offer asking for a seller financed mortgage.
FIVE ADVANTAGES FOR HOME SELLERS OF SELLER FINANCING. In addition to earning a high above-market interest rate, there are many additional seller advantages of financing the home sale that include:
1. Easy quick sale for top dollar. As every merchant and car dealer knows, sales are easiest when the merchandise seller offers easy financing. The same principle applies to home sales where sellers offer easy financing. Price often becomes a non-issue.
2. Vacant houses can be risky for home sellers. If the seller has moved out of the house, this is usually a sign of a very anxious and worried seller, especially if the house has been listed for sale several months. Most sellers of vacant houses will listen to reasonable purchase offers, including seller carryback mortgage terms.
For example, I usually ask for a 20-year seller carryback mortgage. But if the seller wants a shorter term I reply, “Well, let’s amortize the mortgage over 20 years but include an option for you to call the loan due in 10 years.” After 10 years of on-time mortgage payments, sellers rarely exercise that option.
3. Safety of a mortgage or deed of trust on property the seller understands. The major reason home sellers hesitate to carry back a mortgage for their buyer is they fear the buyer will default and not make the monthly payments.
I emphasize this often-unstated fear and explain when a buyer defaults, the seller then can foreclose and either get paid off at the foreclosure sale by a cash bidder or get the home back to resell for a second profit.
4. Installment-sale tax benefits are another seller advantage, especially when the taxable profit exceeds the seller’s $250,000 or $500,000 principal residence sale tax exemption of Internal Revenue Code 121. If the property was not the seller’s principal residence, spreading out the capital gains tax over the years of receiving buyer payments is usually far better than paying a large capital gain tax in the year of the sale.
5. Down-payment cash to pay the home sales expenses. In a typical home seller financing, the buyer makes a cash down payment of 10 percent to 20 percent of the sales price. This down payment is usually sufficient to pay all the sales expenses, including the realty agents’ sales commission.
HOW TO CONVINCE HOME SELLERS TO FINANCE YOUR PURCHASE. Even after explaining all the seller benefits of financing the home sale, some unmotivated sellers are hesitant to carry back a mortgage on the house they are selling.
When that happens, I have resorted to desperate measures when I realize a carryback mortgage is in the best interests of both the seller and the buyer (me!). “Convincer methods” that work include (1) offering to prepay six to 12 months of mortgage payments at the closing (instead of a large down payment); (2) providing a year’s post-dated checks so the seller can deposit a check on the first day of each month; and/or (3) giving the seller a copy of my credit reports and FICO (Fair Isaac Corp.) score obtained at www.myfico.com.
SUMMARY: Especially in the current buyer’s market for homes in most cities, seller mortgage financing is the easiest way to pay for a house or condo purchase with no institutional loan application hassles.
Home sellers and their realty agents need to understand all the seller benefits, including monthly income secured by a mortgage on the home being sold. The best seller finance candidates are free-and-clear homes, especially vacant houses. Not every home can be purchased with seller financing. But all you need is one.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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