Seller financing of the home being sold can put the seller in a bad position if the financing is not considered carefully and weighed against the market. This would include the secondary market in mortgage paper, which also has their investors looking for good deals and deals that have already been put together right.
A trust deed can be a valuable asset in a seller’s hand, provided he insists on getting the correct numbers in his transaction. Ten percent down on the property is usually the benchmark from which the seller can make good on his sale attempt. This level of down payment along with a solid market value to the property, including an accurate appraisal, are factors which will prevent mortgage buyers from offering such huge discounts on the paper they buy.
In an example, suppose a seller needs to move fast, but he has paid into his house for 22 years, having bought it at $62,000. The $89,000 property value is solidified by a growing market (some of those still exist), proper research into comparibles and market conditions peculiar to the given area. with $9000 in pocket for the down payment, the seller now takes his opportunity to receive back a trust deed on the property for $80,000. He charges an 8% interest rate, over 15 years, brionging in regular monthly payments of $764.52. This plain vanilla standard-type deal can be found in many areas of the country.
A mortgager investor may call this trust deed holder with the following scenario: No down payment will be made, but rather, a total purchase price will include what the seller might expect as a down payment, plus a fair price on the mortgage as high as 95%, and possibly more.
Now, suppose the holder has received 18 payments from the beginning, ontime. After these 18 payments, the balance would stand at $75,594.20. This value would attract investors who would take it at a discout to $67825.81 so that their effective interest rate would be 10%. But that would assume a starting home value of $80,000, with 100% financing. Siunce this down payment was made, it figures into the home value, This investor may pay as much as $75,826 for this paper, even giving a few basis points on the rate because of the property’s value. The risk of foreclosure for the paper holder would bring the $8000 back to him. Selling the house off at $91,000 now would net him $16,000 once the transaction closed.
Getting that down payment, then, will put sellers in a stronger position to receive the full value on their house, eventually. When a deal can be put together properly after weighing all aspects of seller financing, the secondary market of mortgage investors will hope to find your property and buy the mortgage from you at a great price, perhaps even at a small premium. Paper hunting is more fun for the investor than house hunting. One appraisal tells them all they need to know. Coupled with this deal, the investor may basically complete your sale by bringing the rest of the funds still needed. Meanwhile, you have collected on the house $13,761.36 worth of payments. Hopefully, you will invest that sum in winning investments also. You might even be willing at this point to learn how to buy the mortgage paper that so many individuals are holding out there in the heartland.