Seller-aided financing for home buyers, often a factor only in tough housing markets, is being pushed by some brokers as a means of moving hard-to-sell homes.
"There is some of it going on, absolutely," said James McGlone, senior vice president of Fox & Lazo, the Haddonfield, N.J., brokerage chain. "It's been something of a buyer's market and there's a lot of things sellers can do to give themselves an edge. We're asking our agents to go back to everyone whose house has been on the market 60 days or more. We ask sellers to consider some price adjustments, discuss a new marketing plan for open houses and advertising, and ask them to consider picking up some of a buyer's closing costs or points. Ninety days ago you weren't seeing any of that."McGlone said sellers who agree to make financing and price concessions are generally "those who have a high motivation to sell - transferees or a guy who has made a commitment on another property."
Seller financing of an even more extensive nature is urged by H. Parker Blount and Shauna Blount, authors of an article in the April issue of Real Estate Today, a trade magazine for real estate agents and brokers. Shauna Blount is an agent for a realty firm in Lithona, Ga., and Parker Blount is an associate professor of educational psychology at Georgia State University in Atlanta.
Full seller financing, sometimes called "taking back" a mortgage or a purchase-money mortgage, "is an attractive option not only in times of high interest rates but also in times of low interest rates," the Blounts contend in the article. "As a marketing strategy, seller financing magnifies a property's sales potential."
Basically, the seller who takes back a mortgage lends his equity in the home to the buyer in exchange for regular payments, usually securing the loan with the home as collateral. Sellers anxious to dispose of a property can give breaks to a buyer such as lower-than-market interest rate or a longer term for the loan. However, the Blounts point out, many sellers "charge a little higher interest than current rates, since they're saving the buyer closing costs and the considerable time involved in qualifying for a mortgage."
Sellers who consider handling financing should make sure there is a clear title to the home, with no liens, and that the original mortgage is assumable, according to the Blounts. Mortgages with so-called due-on-sale clauses can complicate seller financing.
It's also advisable for both parties in a seller-financed deal to have the advice of a lawyer and/or financial expert.
Other methods of seller-backed "creative financing," which cropped up occasionally during the housing recession of 1980-82, so-called land contracts, under which the buyer gets possession of a home but the seller retains legal title until an agreed-upon payment is made, and wraparound mortgages, in which the seller retains an existing mortgage and lends a larger amount to the buyer.
Dennis Campbell, senior vice president of the Federal National Mortgage Association (Fannie Mae), said lenders are also finding "creative ways" to attract borrowers. Many lenders offer fixed-rate mortgages with discounted rates during the first few years (buydowns), as well as a wide variety of ARMs (adjustable-rate mortgages) that have enabled borrowers to navigate their way through high rates.