Why You Should Consider Owner Financing When Selling Your Home

By: Joe Manausa

I received so much feedback on The Creative Cure For Selling Your Home article that I decided to follow it up with a "how and why" to consider a Purchase Money Mortgage when selling your home.

So what is a Purchase Money Mortgage?

Sometimes a buyer wants to buy a home and has good enough credit to purchase the home, but is short some of the cash that the lending institution will require to close the loan. In cases like this, the Seller can hold a note for some of the cash and secure it as a secondary lien on the home. When this is done, we refer to the Seller's second a Purchase Money Mortgage.

From the Seller's standpoint, the Seller is acting just like a bank. The Seller is lending some (or all) of his equity in the home to the buyer in order to facilitate a sale. Typically, the Seller is only lending a small amount of money (compared to the value of the home) so another lender is required to bring the bulk of the money required to close on the home. That lender will be in the first mortgage position while the Seller's purchase money mortgage will be recorded in the second mortgage position.

Let's consider an example on how this could work.

Mr. and Mrs. Smith would like to buy a Tallahassee home. They find that Mr. and Mrs. Jones have the perfect home for sale in Tallahassee and it is priced at $250,000. The Smith's go to the bank and discover that the bank will lend them $200,000 to purchase the home, all the Smiths need to do is invest $50,000 ($250,000 price - $200,000 loan = $50,000 down payment).

The Smiths look at all of their sources of money and discover that they can only raise $35,000, leaving them $15,000 short. So, working with an excellent and creative Realtor in Tallahassee, they make the following offer:

Tallahassee home for sale
Purchase Price $250,000
New First Mortgage (Bank) $200,000
Purchase Money Mortgage $15,000
Cash Due At Closing $35,000

At closing, the Smiths get $235,000 as well as a note from the Joneses for $15,000.

This creative solution is simple and creates a larger market for the Smith Home. Rather than have to lower their price to attract more buyers, the Smiths have attracted more buyers by making the house more affordable (not only to people with large cash reserves).

I'm sure that many readers wonder why $15,000, held as a second mortgage, brings this home to the forefront of the market. The key is cash. Many strong home buyers are strapped for cash and this little bit of help makes all the difference in the world. With so many homes on the market, one that is equipped with a $15,000 loan certainly stands out from the crowd. Don't be afraid to try any creative ideas to get your home sold in today's tough real estate market.

In today's market, Tallahassee homeowners need to consider all the creative solutions possible to sell a Tallahassee home.

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