Credit, Mortgages

Don’t Sell Yourself Short!

Time to continue the discussion on the utility and flexibility of seller finance contracts:

Specifically a Contract for Deed, or Land Contract as commonly referred to in the underwriting guidelines. What? – there are still short sales out there? YES!!!

According to a recent RealtyTrac survey, just 38% of homeowners who purchased during the peak in 2005 and 2006 are in a positive equity position.  So how can a person who is upside down in their home sell it, without damaging their credit and their chances to get into another home immediately? You guessed it – a Contract for Deed sale.

Here is an example of when this would happen:

Home Value                 $275,000

Mortgage Balance        $270,000

Why it’s important:

Realtors who don’t know about this would typically have you sell your home and negotiate a lengthy and damaging short sale contract.  That’s nice, but how to you buy your next home with no down payment and damaged credit?  YOU DON’T!!!  But remember, a seller-finance buyer is willing to pay a premium right now for a discounted price in the future.

 Here’s how this might look:

Seller Finance Purchase Price            $290,000
Buyer’s Down Payment                          25,000
Balance owing on Contract                 $265,000
Since the seller has no equity, all proceeds from the sale apply to the mortgage balance – after real estate commissions.  In this case the seller’s mortgage balance is paid down to the exact balance of the Contract for Deed.

If done correctly, an underwriter will treat the short sale home as a rented property and the worst-case scenario for our otherwise short sale buyer is to wait one year instead of 3 or 4 years as a renter.  The worst-case doesn’t sound that bad, does it? Many times we can make this work with no waiting time period at all.

So here you have just one more example of the make-sense solutions seller financing can create. If seller financing sounds like a good option for you, please give me a call! I would be happy to talk with you about the ins and outs of seller financing, to find out what will work best for your situation.