7. FHA 5/1 ARM Rate Is Fixed For 5 Years Amortizes Just Like Any Fixed Rate Loan Can Adjust Starting The 6th Year Can Not Go Up More Than 1% Per Year 5% Maximum Lifetime Cap
8. Comparison Seller Pays 2 Points On Behalf Of Buyer Buys Rate Down To 3.75% Rate Stays The Same For 5 Full Years
9. The Worst Case Years 1 Thru 5 Would Be 3.75% Year 6 Could Be As Much As 4.75% Year 7 Could Be As Much As 5.75% Year 8 Could Be As Much As 6.75% $240 Savings X 60 Months = $14,400.00
10. Wrap Your Arms Around This $270,000 Home 2 Discount Points = $5400 Saves $240 A Month For 60 Months Seller Would Have To Reduce Price Over $40,000 To Achieve This Payment Savings!!!
11. Potential Increases Greater Income Potential In 5 Years How Long Will They Stay In The Home? Typical Home Owner Stays About 7 Years 7 Years Average Rate = 4.5% All Based On The Worst Case Scenario And Don’t Forget That The Start Rate Was Going To Be 5.25%
12. But Wait There’s More FHA only requires 3.5% down payment Easier Qualifications Liberal Use Of Gift Monies More Credit Tolerant
13. The End Result? An Affordable Payment Makes It Easier To Buy The Seller Gets A Better Price You Get A Larger Check The Neighborhood Retains A Higher Value You Make Other People Happy!!
15. Got Questions? Don Grantham Benchmark Mortgage 2300 Highland Village Rd. Ste 630 972-317-1902 x 203 dgrantham@benchmark.us Make sure and ask me about my Realtor Marketing System, “Agents Unfair Advantage”
Editor's Notes
Hello its me again… Don Grantham with Benchmark Mortgage and today I am bringing you another strategy that will help you sell more houses. Today’s strategy is aimed at the sellers side…….. But most definitely can be utilized by you for your buyers. So lets get started.
Let’s start with the premise that buyers do NOT buy big ticket items (like a home or a car) based on its sales price; rather, they buy based on their proposed monthly payment (or cost).Additionally, when looking to sell your home with so much availability of homes on the market, the biggest challenge a seller faces is DIFFERENTIATING their home from the rest.
Why not combine the WANT of the buyer (lower monthly costs) with the NEED of the seller (differentiation) through presenting different financing options? Here is one of the ways you can just that.
I know, I know….ARMS are blasphemous. But listen– in a rising interest rate market, they become a necessity. Now if you don’t know…. The federal government is getting out of the mortgage business at the end of March and all of the experts agree that rates are going to rise …… with that in mind…….Your client who qualifies at 5.5% may not qualify at 6% or 6.5%. Moreover, this loan product is AWESOME.The FHA 5/1 ARM works like this: the interest rate and payment remains FIXED for 5 years and amortizes just like a fixed rate loan. After that, the rate can change annually, but the beauty of the FHA ARM products is that they cannot change more than 1% in any given year and no more than 5% lifetime.
For comparison purposes only, if a seller wanted to pay 2 points on behalf of a buyer today rather than reducing the selling price, we would be looking at an interest rate of 3.75% for the first FIVE years.
Assuming the WORST CASE, Year-6 would be at 4.75%, Year-7 at 5.75% and Year-8 at 6.75%. That would give a buyer an average interest rate of 4.5% over 8 years… in a worst case scenario. That is significantly better than the 5.25% FIXED RATE loan they would get today. On a $270,000 mortgage, the buyer will save more than $240 every month for the first 5 years (or about $14,400 in total).
So rather than lower the sales price $5400 (on that $270,000 home), why not offer to pay the $5400 in discount points and make your home $240 cheaper than the neighbor’s home for the first 60 months??? From a buyer’s perspective, lowering the payment $240 is the cash flow equivalent of the seller reducing their price over $40,000And My Friends That is HUGE!!!
What about potential increases? Two things:We all believe that our incomes will be higher 5 years from now (just due to inflation), so if the payment does go up, it won’t be as painful. How long will the buyer stay in the home? If they are typical and stay about 7 years, and they get the worst case scenario, they will have an average interest rate of under 4.5%. And don’t forget…….. The original GOOD rate was going to be 5.25%
And it all comes with the benefits of FHA financing, higher LTVs (only 3.5% down payment required), expanded ratios, the liberal use of gift monies, and more tolerance for credit challenges.More affordable…..makes buyers BUY. More creative approaches….makes more homes look attractive.
The end result? The buyer chooses your listing because of the affordable payment (remember when we talked about cost)?………….. The sellers gets a better price ( you didn’t have to discount it much) You get a larger check…….. The neighborhood retains a higher value…. Because of you! And most of all………….. You have made a lot of people happy
So there you have it in a nutshell…………………. A knock it out of the park strategy that will sell you more homes…. And get you more business…..and don’t forget it works regardless of the side of the transaction that you are on. I hope you enjoyed today’s presentation and that you learned something as well. Until next time…. Have a great day!
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