If you are ready now to take the step of buying a home, but don't have all the upfront cash you think you'd need, there are several ways in which a home seller can assist you in buying his home. A competent Realtor can review all of your options but here are a few examples.
FHA MORTGAGE WITH SELLER FINANCED CLOSING COSTS
FHA has a mandate to help people buy homes so they make it easier for a buyer to qualify for a loan with more lenient income to debt ratios and credit scores. Sellers are also allowed to contribute up to 6% toward the Buyers closing costs. FHA mortgages requiring as little as 3.5% of the purchase price as down payment have been available for years. Your Realtor, working with the home seller and an FHA-approved mortgage provider, can structure your loan so that the seller pays all or nearly all of your closing costs, other than the 3,5% down payment. In the current market environment, many home sellers are willing to participate in this type of arrangement to get their home sold.
BUY DOWNS – There are many variations of the "Buy Downs," Some are permanent, where the interest rate is reduced over the entire life of the loan. Others are more temporary, allowing you to keep the interest rate, and therefore your monthly payment, low for the first 1 -3 years of the loan. The most popular is what's known as a 3-2-1 Buy Down. Here your rate is 3% below the market interest rate in the first year, 2% in the second year, and 1% below in the third year. This allows you to grow into your loan payments over 3 years. If your expectation is that your family income will grow over that period by enough to cover the eventual cost, this may be an option for you. "Buying down" your first 3 years of loan payments in this manner will cost the seller roughly 4.5% of the loan amount. As an example, on a $225,000 mortgage the fixed rate payment at 6.5% would be $1,422.15. Using a 3-2-1- buy down, the first year payment would be $1,010.35, the second year is $1,140.04, the third year is $1,277.53, and in the remaining 27 years, $1,422.15. That "buy down" of the first three years payments saved the buyer over $10,000 in mortgage payments.
SELLER FINANCING – Less frequently, but occasionally, there are sellers who own their home outright (no mortgage on the property) who will agree to assist you by holding your mortgage. In this case, you do not have to qualify through the normal bank financing route. In effect the seller, instead of a bank or other mortgage company, becomes your mortgage provider. Such a mortgage can be written with essentially any terms and conditions that you and the seller agree upon ranging from financing 100% of the purchase price to requiring a minimal or larger down payment, with or without a "balloon payment" at some point in the future, and for a term of 10, 15, 25 or 30 years.
If the home seller is motivated, and there are no other offers for the home, he may be willing to work out a deal. However, if the seller is unfamiliar with seller financing, your Realtor can show them what is involved and how the process works.
Such private lenders frequently charge a higher interest rate and may want to use this approach to get the highest possible price for their property so you need to deal with a competent Realtor who can negotiate your way through this option for you. But, if cash on hand is the problem you are dealing, this approach may be an option.
The point of this discussion is this. If you have a reasonably decent credit rating FICO score and are ready to buy your first home, don't be scared off because you don't think you have enough saved up yet. The price of homes and the interest rates available are as low right now as they have been in a long time. Meet and discuss your options with a competent Realtor like
Brian Ward, Sarasota Realtor. You may be closer to your dream of home ownership than you have dared to hope.
