Buying or Selling, is the Mortgage Your Only Option? Interesting Points to Remember

Posted on July 31, 2009
Filed Under Mortgage | Leave a Comment

These days, thanks to the ever-increasing use of the internet to seek out homes for sale, and the increased participation of homeowners in the buying and selling process, there is greater interaction between the purchaser and seller. Not only is this good for public relations, it is also an excellent chance to explore other funding options, for the buyer and for the seller.

It is standard on the part of the purchaser to assume their only option when purchasing a house is to obtain a mortgage, but the usual lending process. This is not always the case, and at present more than ever, buyers and sellers are coming together with creative and accommodating ways to influence the purchase, or sale, of the home depending upon your status as purchaser or seller.

Quite often, persons interested in purchasing a home lack the 20% down payment often required from the lender. Provided the seller has established equity of the home, there are other options for the buy and sale agreement. Seller financed mortgages are the most general alternative mortgage option exercised; seller financed mortgages however, are not the only option that can be considered. In this article, were going to take a look at some of the alternative mortgage options that are rarely exercised, but that do provide marvelous benefit to the purchaser and seller.

As a seller, the conditions must be that allow you to offer the buyer alternative options. Your mortgage balance must be considerably less than the fair market sale price or your hands are basically tied. Imagine a scenario: you’re ready to sell your home, the purchaser is ready to purchase your home, and they plainly do not have a 20% down payment. What they do have is a 5% down payment, and the desire to work with the seller and the mortgage lender. You’re asking price for the home is $80,000 and the appraised value of the home is $85,000; your existing mortgage is $50,000 and the lender requires the proposed purchaser to provide a $16,000 down payment. How can a way out be reached? If you, as the seller are willing to take a second lien on the property, there is a effective way out. The fact that the home appraises for more than the asking price, automatically provides the buyers with a $5,000 level of equity, so they only need $11,000 more to reach a 20% down payment. They have $4000; in order to accommodate the buyers, you could accept $74,000 in upfront mortgage money from the lender, and take a second lien on the $6000 difference. This method works only if you’re willing to take the second lien, and the buyers are credible and honest individuals.

Taking second liens or second mortgages are increasing in popularity as a means to sale increasing value real estate in today’s quickly increasing market. There are other spins offs from the fundamental formula described, however the scenario above is the most ordinary and provides the purchaser and seller with the basis for expanding with creative add- ons. Sure, the seller financed mortgage is still the meat and potatoes of the alternative financing industry.

How does the seller financed mortgage work? In general, it works in this manner: if the seller owns the house outright he or she may opt to finance a mortgage for the purchaser, and set up an amortized loan. Thanks to the readily available personal computer, loans can be constructed that would have only be available through an accountant or lending institution, 20 years ago.

Sure, how you decide as a purchaser or seller to ultimately close a deal, will be dependent on a lot of factors, this may be just one of the more important aspects. How well you know each other, credit ratings, and the dollar value of the mortgage will also influence your decision.

Regardless of the ultimate decision, the opportunity exists to explore other avenue other than the usual mortgage lending institutions, or mortgage companies. And, sometimes, you never know, the deal from the seller financed mortgage may open more doors than just a mortgage for homeownership!

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