Are you aware how difficult it is to get a jumbo loan these days? If you are selling your jumbo loan sized home or listing one, what are you doing to make it easier for a long line of qualified buyers able to buy your home?
One strategy you may want to consider is a seller carryback. A seller carryback is financing by the seller, usually in the form of a second mortgage.
The easiest way to understand how a seller carryback works is to look at an example. Suppose you own a home worth $1 million. You owe $300,000. You plan to buy a new home for $1,500,000, and make a 25% down payment of $375,000.
Assuming a sale price of $1 million minus 7% selling costs, you net $930,000. If you pay off your $300,000 loan, you can net $630,000. You only need $375,000 for the down payment, plus $25,000 for closing costs, moving expenses, and a little vacation after all this stress! Now you have $230,000 left over. What are you going to do with these funds?
Suppose you offer a $230,000 seller carryback second mortgage. How does that benefit a buyer:
- A smaller down payment may be needed
- It takes the financing out of the jumbo category and puts it in the conforming category, which is easier to obtain
- It gets rid of the need for private mortgage insurance, which is an additional monthly cost to the buyer
- The buyer does not have to qualify for private mortgage insurance, which is very difficult these days
- You get a higher yield than if you put the $230,000 in a low yielding account
- You have opened the door to a larger pool of qualified buyers to purchase your home, therefore
- You may be able to sell your home for a higher price because you have reduced the toughest barrier to purchase a home today, financing
- The term must be at least for 5 years
- There must be monthly payments (no deferral of payments)
- The payments must at least cover the interest
- The interest rate charged must be a "market" rate (I interpret this to mean not way lower or way higher than the current market rates)
Phil Caulfield NMLS #386911 APMC #1850 has been helping people obtain mortgages since 1985. The views, articles, postings, and information listed at this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.