Assist the Buyer with 75 - 10 - 15 Financing
Julie Garton-Good, GRI, DREI

This innovative plan can help you move your property quickly in a highly competitive market. It's a combination of a conventional fixed-rate loan and seller financing that provides a lot of flexibility in structuring the financing elements of the transaction. Let's say that the buyer wants a 75 percent mortgage (to get a good interest rate, not pay private mortgage insurance, and have fewer closing costs). Unfortunately, the buyer doesn't have the required 25 percent down payment. You want to sell the house, and don't need all of your equity right away, so you propose the following:

You (the seller) tell the buyer that you'll be glad to help out and carry a small second mortgage (15 percent of the purchase price) for a period of time (say five years). But the buyer will have to give you the full sales price and pay you interest at the same rate they're paying on the first mortgage to the lender. (Just think of the extra proceeds you'll make on your sales price!)

Here's how the financing is structured:

  1. Sales Price $85,000
  2. Lender loan (75% loan-to-value) $63,750
  3. 10 percent (of sales price as down payment) - $8,500
  4. Seller carries the balance for five years -$12,750

(15 percent of the sales price in the form of a second mortgage), and receives payments monthly, principal and interest or interest only with a balloon payment due at the end of the term of the mortgage--whatever is mutually agreed to by both the buyer and seller.

Advantages:

  1. As the seller, you get a significant portion of the proceeds at closing (from the new first mortgage, less costs of sale);
  2. You increase your sales price by the interest you receive;
  3. The borrower sidesteps private mortgage insurance (because the first mortgage is less than 80 percent) and should be able to receive a competitive rate of interest on the 75 percent first mortgage.

Ask your Realtor and lender if this example might work to finance your home and help it sell!

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