Seller Enhanced Financing

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Seller Enhanced Financing

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What is Seller Enhanced financing and how is it most commonly used?

• When the Seller Contributes to the Buyers mortgage finance expense such as;

• Interest rate Buydown by paying Pre-paid interest (points) to reduce the buyer mortgage rate for the buyer

• Direct payment of fees associated with the mortgage loan• Cost of a longer lock in periods for the buyer loan• Cost of a “float down” which permits the buyer to be released

form a lock in and take advantage of a lower market rate

Types of Buydown financing

• Buydown-paying a fee to reduce the interest rate on a mortgage loan

• Permanent Buydown-reduces the rate for the life of the loan.

• Temporary Buydown-reduce the interest rate for a specific period or time

• 3-2-1 Buydown- reduces the interest rate 3% for the first year, 2% for the second year,1% for the third year, then stays at the initial interest rate for the remainder of the fixed rate loan.

Permanent buy down example

• 2 Point Rate Reduction• Purchase Price $ 400,000• Loan Amount $ 300,000• Current 0 point rate for purchase 4.875% payment $1,587• 2 point seller paid rate reduction 4.375% payment $1,497• $ 90/monthly savings • Total Cost to Seller $ 6,000• Overall Interest Savings to Buyer $ 32,400

Example of a 3-2-1 Buydown

• 5% 30 year fixed rate $350,000 mortgage • 2% rate or payment of $1294 the 1st year ($7020)

• 3% rate or payment of $1476 the 2nd year ($4836)

• 4% rate or payment of $1671 the 3rd year ($2496)

• 5% rate or payment of $1879 thereafter.• Cost to Seller is $14,352

Seller paid Mortgage Closing Costs

• Direct Mortgage loan closing fees such as;– Points– Appraisal and credit– Title insurance and recording fees– Settlement fees– Mortgage tax– Home inspections– Home buyer warranties– Establishment of property tax escrow accounts

Seller paid Mortgage Closing Costs

• Sales price of $500,000• FHA loans with 5% down.• $475,000 mortgage• Allowable Sales concession is up to 6% of the

SALES PRICE or $28,500.• This is enough to cover all Mortgage Closing fees

and Escrows.

Seller paid Mortgage Closing Costs

• A Sellers Concession is the amount a Seller is paying on behalf of the Buyer.

• Underwriting guidelines limit the amount a Seller may pay on behalf of the buyer based on LTV:– 95% LTV or higher the Seller may pay up to 3% of the SALES

PRICE in Sales Concessions

– 95% LTV or Seller may pay up to 6% of the SALES PRICE in Sales concessions

– FHA allows 6% “currently” on all loans as long as the total does not exceed the original listing price.

– Any amount above the allowable amount will be deducted from the sales price.

Extended Lock-in Options

• Long Term Lock in for buyers mortgage– Seller can pay the expense of extending the buyers rate

lock in for 90+ days.– Approximately .25% of loan amount for each additional 30

days.– 180 to 360 days available for new construction.

Float Downs

• Float Downs- is when a fee is paid to release the buyer from their current rate lock-in and take advantage of lower rates.– .5% of the loan amount to lower the rate with the same

expiration date– .75% of the loan Amount to lower the rate to current

market with a new 60 day lock0in– Fee only paid when and if the float down is used

When to use Seller Enhanced Financing?When working with a buyer who is

• Short cash to cover all closing fees• Needs a longer period of rate lock protection due to

a longer term closing date• Needs a lower rate to qualify

When to use Seller Enhanced Financing?When working with a Seller who…• Wants to sell their home but is unwilling to reduce

the price further• A seller who is willing to contribute to a buyer

Mortgage costs instead of lowering the price.• For listings that you want to highlight and generate

increased activity by offering “Seller Enhanced Financing” options

DE Capital Mortgage is your Partner!!

A DE Capital Home loan Consultant with a strong knowledge of how to use Seller Enhanced Financing will be able to answer all of your Sellers and Buyers questions and help consummate the sale. When a home buyer says, “I’d love to buy that house, keep make sure you keep “SELLER ENHANCED FINANCING” in your toolbox of negotiating tools!!

Phone: (631) 422-8288

124 East Main Street

Babylon, NY 11702

www.DECapitalMortgage.com