Download - Seller Enhanced Financing
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Seller Enhanced Financing
Date
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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
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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.
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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
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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
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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
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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.
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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.
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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.
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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
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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
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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
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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!!
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Phone: (631) 422-8288
124 East Main Street
Babylon, NY 11702
www.DECapitalMortgage.com