Your Mortgage : Slow Market Spurs Financing Help by Sellers : Housing: Many are willing to ‘carry back’ a second mortgage, pay closing costs or toss in other ‘goodies’ to clinch sale.
With sales slow, a growing number of frustrated home sellers are offering to help would-be buyers with their financing.
Many are willing to “carry back” a second mortgage, in essence agreeing to help the buyer with the down payment. Others are offering to pay for some or all of the closing costs that buyers would typically pay if the market were stronger.
And some sellers are even willing to pay thousands of dollars to “buy down” the interest rate on a would-be buyer’s loan to increase the chances of getting the financing needed to close a deal.
“You always see ‘creative financing’ pick up when the market slows down, and this year is no exception,” said John Tuccillo, chief economist of the National Assn. of Realtors.
“And you can bet that it’ll pretty much disappear again when the real estate market heats up.”
The most common type of assistance being offered by home sellers is to carry back a second mortgage.
Let’s say that the two parties agree to a $150,000 purchase price. The seller has a 10% down payment of $15,000, but the bank will lend him only $125,000. That leaves him $10,000 short.
To close the deal, the seller could agree to carry back a $10,000 second mortgage. Not only would this lessen the need for the buyer to make a big down payment: It would also make it easier for the buyer to get a bank loan because the size of the loan would be smaller.
In normal times, the buyer would have to make two payments each month--one to the bank that finances the bulk of the transaction and another to the seller who carrys back the second mortgage.
But some realtors say that, because of the soft market, some sellers are even agreeing to temporarily suspend the monthly payments due on the second mortgage just to get their house sold.
Another common way used by many sellers is offering to pay for most or all of the buyer’s closing costs.
Closing costs include charges for escrow services, which are usually split 50-50 between the buyer and the seller. They also include thousands of dollars in loan set-up fees for points, appraisals, credit reports and the like--charges that the buyer usually pays all by himself.
But to woo hard-to-find buyers, many homeowners are agreeing not only to pay for all the escrow charges: They’re also willing to help pay some or all of the buyer’s set-up fees.
For example, veteran San Fernando Valley broker Temmy Walker said one of her agents was recently representing a buyer who made a $330,000 offer on a house listed for $350,000.
The sellers were willing to make a few minor concessions, but wouldn’t budge from their original asking price.
Normally, Walker would have suggested that the would-be buyers up their ante to $340,000. But instead, she counseled them to make a full-price offer of $350,000 on the condition that the sellers pay about $10,000 of the buyers’ closing costs.
The sellers agreed.
“The sellers were just adamant about selling for $350,000, and that’s what they got,” she said. “The buyers didn’t want to pay more than $340,000, and--after you subtract the $10,000 that the sellers paid for closing costs--that’s what the buyers actually paid.
“If the sellers hadn’t agreed to pay those closing costs, we probably never would have made the deal.”
Some desperate sellers have even stolen a trick long used by many builders to sell their homes: They’re offering to “buy down” the interest rate on the loan that a potential buyer would need to make a sale.
Let’s say you put your home on the market six months ago for $350,000. Despite cutting your asking price twice, you still can’t find any takers at $300,000.
To boost your chances, you could visit a lender or mortgage broker to see about buying down a loan.
For example, fixed-rate “jumbo” loans--loans of more than $191,450--currently stand at about 10 1/2%, said Gloria Shulman, a mortgage broker and president of Crestview Financial Group in Beverly Hills.
But if you were willing to pay about $5,000, Shulman said, she could offer any buyer you eventually find a 9 7/8% fixed-rate loan.
Although that might not seem like much of a difference, it would make it easier for the buyer to qualify for a mortgage and save him tens of thousands of dollars in interest charges over the 30-year term.
“Offering a buy down can be a good marketing gimmick and make your home stand out from the rest,” Shulman said. “But to be honest, it would be a lot simpler for you to just knock another $5,000 off your asking price.”
Letters and questions may be sent to Myers at the Real Estate section, Los Angeles Times, Times Mirror Square, Los Angeles 90053. Questions cannot be answered individually. AVERAGE RATES FOR RESIDENTIAL MORTGAGES Average rates for residential mortgages as of March 8, 1991.
Survey Conventional Mortgages Adjustable Mortgages Area 15 Year 30 Year Composite 1 Year Composite National 9.31% 9.61% 9.47% 7.43% 7.73% California 9.57 9.84 9.72 7.80 7.81 Connecticut 9.30 9.55 9.45 7.32 7.58 Wash. D.C. 9.19 9.52 9.37 7.06 7.32 Florida 9.27 9.63 9.46 7.28 7.62 Mass. 9.37 9.62 9.50 7.43 7.81 New Jersey 9.27 9.57 9.44 7.42 7.87 N.Y. Metro 9.37 9.66 9.53 7.47 7.84 New York 9.51 9.78 9.66 7.57 7.89 N.Y. Co-ops 9.76 9.96 9.92 7.82 8.22 Pa. 9.07 9.37 9.23 7.27 7.40 Texas 9.12 9.39 9.26 7.47 7.64
SOURCE: HSH Associates, Butler, N.J.
