Seller Enhanced Financing


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Seller Enhanced Financing

  1. 1. Seller Enhanced Financing <ul><li>Date </li></ul>
  2. 2. What is Seller Enhanced financing and how is it most commonly used? <ul><li>When the Seller Contributes to the Buyers mortgage finance expense such as; </li></ul><ul><li>Interest rate Buydown by paying Pre-paid interest (points) to reduce the buyer mortgage rate for the buyer </li></ul><ul><li>Direct payment of fees associated with the mortgage loan </li></ul><ul><li>Cost of a longer lock in periods for the buyer loan </li></ul><ul><li>Cost of a “float down” which permits the buyer to be released form a lock in and take advantage of a lower market rate </li></ul>
  3. 3. Types of Buydown financing <ul><li>Buydown-paying a fee to reduce the interest rate on a mortgage loan </li></ul><ul><li>Permanent Buydown-reduces the rate for the life of the loan. </li></ul><ul><li>Temporary Buydown-reduce the interest rate for a specific period or time </li></ul><ul><li>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. </li></ul>
  4. 4. Permanent buy down example <ul><li>2 Point Rate Reduction </li></ul><ul><li>Purchase Price $ 400,000 </li></ul><ul><li>Loan Amount $ 300,000 </li></ul><ul><li>Current 0 point rate for purchase 4.875% payment $1,587 </li></ul><ul><li>2 point seller paid rate reduction 4.375% payment $1,497 </li></ul><ul><li>$ 90/monthly savings </li></ul><ul><li>Total Cost to Seller $ 6,000 </li></ul><ul><li>Overall Interest Savings to Buyer $ 32,400 </li></ul>
  5. 7. Example of a 3-2-1 Buydown <ul><li>5% 30 year fixed rate $350,000 mortgage </li></ul><ul><li>2% rate or payment of $1294 the 1 st year ($7020) </li></ul><ul><li>3% rate or payment of $1476 the 2 nd year ($4836) </li></ul><ul><li>4% rate or payment of $1671 the 3 rd year ($2496) </li></ul><ul><li>5% rate or payment of $1879 thereafter. </li></ul><ul><li>Cost to Seller is $14,352 </li></ul>
  6. 8. Seller paid Mortgage Closing Costs <ul><li>Direct Mortgage loan closing fees such as ; </li></ul><ul><ul><li>Points </li></ul></ul><ul><ul><li>Appraisal and credit </li></ul></ul><ul><ul><li>Title insurance and recording fees </li></ul></ul><ul><ul><li>Settlement fees </li></ul></ul><ul><ul><li>Mortgage tax </li></ul></ul><ul><ul><li>Home inspections </li></ul></ul><ul><ul><li>Home buyer warranties </li></ul></ul><ul><ul><li>Establishment of property tax escrow accounts </li></ul></ul>
  7. 9. Seller paid Mortgage Closing Costs <ul><li>Sales price of $500,000 </li></ul><ul><li>FHA loans with 5% down. </li></ul><ul><li>$475,000 mortgage </li></ul><ul><li>Allowable Sales concession is up to 6% of the SALES PRICE or $28,500. </li></ul><ul><li>This is enough to cover all Mortgage Closing fees and Escrows. </li></ul>
  8. 10. Seller paid Mortgage Closing Costs <ul><li>A Sellers Concession is the amount a Seller is paying on behalf of the Buyer. </li></ul><ul><li>Underwriting guidelines limit the amount a Seller may pay on behalf of the buyer based on LTV: </li></ul><ul><ul><li>95% LTV or higher the Seller may pay up to 3% of the SALES PRICE in Sales Concessions </li></ul></ul><ul><ul><li>95% LTV or Seller may pay up to 6% of the SALES PRICE in Sales concessions </li></ul></ul><ul><ul><li>FHA allows 6% “currently” on all loans as long as the total does not exceed the original listing price. </li></ul></ul><ul><ul><li>Any amount above the allowable amount will be deducted from the sales price. </li></ul></ul>
  9. 11. Extended Lock-in Options <ul><li>Long Term Lock in for buyers mortgage </li></ul><ul><ul><li>Seller can pay the expense of extending the buyers rate lock in for 90+ days. </li></ul></ul><ul><ul><li>Approximately .25% of loan amount for each additional 30 days. </li></ul></ul><ul><ul><li>180 to 360 days available for new construction. </li></ul></ul>
  10. 12. Float Downs <ul><li>Float Downs- is when a fee is paid to release the buyer from their current rate lock-in and take advantage of lower rates. </li></ul><ul><ul><li>.5% of the loan amount to lower the rate with the same expiration date </li></ul></ul><ul><ul><li>.75% of the loan Amount to lower the rate to current market with a new 60 day lock0in </li></ul></ul><ul><ul><li>Fee only paid when and if the float down is used </li></ul></ul>
  11. 13. When to use Seller Enhanced Financing? <ul><li>When working with a buyer who is </li></ul><ul><li>Short cash to cover all closing fees </li></ul><ul><li>Needs a longer period of rate lock protection due to a longer term closing date </li></ul><ul><li>Needs a lower rate to qualify </li></ul>
  12. 14. When to use Seller Enhanced Financing? <ul><li>When working with a Seller who… </li></ul><ul><li>Wants to sell their home but is unwilling to reduce the price further </li></ul><ul><li>A seller who is willing to contribute to a buyer Mortgage costs instead of lowering the price. </li></ul><ul><li>For listings that you want to highlight and generate increased activity by offering “Seller Enhanced Financing” options </li></ul>
  13. 15. DE Capital Mortgage is your Partner!! <ul><li>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!! </li></ul>
  14. 16. <ul><li>Phone: (631) 422-8288 </li></ul><ul><li>124 East Main Street </li></ul><ul><li>Babylon, NY 11702 </li></ul><ul><li> </li></ul>