When the housing market is slow and you need to sell your house fast you might be able to get ahead of the competition by offering some creative financing to the buyer. Most sellers don’t know that they have these options to offer and in many instances they end up costing you less than lowering the price of your home. If you have a buyer who is on the fence over purchasing your home or another one consider offering him one of the following options.
Interest Rate Buy-Down
With an interest rate buy-down you offer to lower the buyer’s interest rate on the loan for a set amount of time by paying points. This will make his payment more affordable during the first 2-3 years of the loan without you having to lower the price of the house. Temporary interest rate buy-downs can be offered two different ways:
• 3-2-1 – With this style of buy-down the buyer will pay 3 points below the current interest rate for the first year, 2 points below during the second year and 1 point below in the third year. After that the payment is adjusted to the original interest rate.
• 2-1 – This acts like the 3-2-1 but is for two years.
A permanent buy-down is also available for the life of a loan but this option costs the seller more money than they are usually willing to pay.
How does this benefit the seller and the buyer? Let’s say you sell you home for $200,000 and the mortgage for the buyer is a 30-year fixed rate at 7% interest. The current monthly payment for the buyer would be $1,331. If you offer a 2-1 buy-down the buyer will pay 5% interest on the first year of the loan with a monthly payment of $1,074 and then 6% interest the second year with a monthly payment of $1,199. After this the interest will rise back to the original 7%. In the first two years of the loan the buyer will have saved approximately $4,700. In order for the buyer to have received the first year’s low payment of $1,074/month you would have had to drop the selling price down $38,000. One point costs 1% of the total selling price, so in this case you purchased points for $4,000 for that first year. In this situation both the buyer and seller wins. You receive the asking price for your home and the buyer gets a lower payment for the first two years.
Another benefit to the seller is that the cost of the points comes out at closing so you pay no up-front fees. Although you are paying for the points you still save money by not lowering your original price for the house.
To sell your home quicker you may want to offer to pay some, or all of the closing costs. Closing costs typically run between 2 to 7% of the amount of the loan. So if the buyer’s loan is $200,000 and the closing costs are 5% they will have to pay an extra $10,000. Closing costs are generally added to the loan amount. If you offer to pay half or all of the closing costs you will save the buyer money for the life of their loan without having to lower the price of your home by a large amount.
Seller Pays Down Payment
In cases where the buyer is able to get sufficient financing but doesn’t have enough to cover the down payment the seller can offer to pay a portion of, or all of the down payment. In most cases this is an option that does not cost the seller extra money. For example:
You are selling a house for $100,000 but are willing to go down to $90,000 if necessary. A buyer wants to purchase it but doesn’t have the 10% down payment that his bank needs for him to finance it. Instead of lowering the price you sell it for the original $100,000, pay the $10,000 down payment for the buyer and still receive the $90,000 you wanted. The buyer is able to purchase the home and you receive the money you originally wanted.
Other options you can look into are the contract-for-deed and the lease option or lease purchase sale. It is important that you research each option thoroughly before deciding to offer it to a buyer. By understanding the selling options available you will be one foot ahead of the competition when trying to sell your house.