Financing Strategies for Home Sellers

If your neighborhood is anything like mine, the red-hot real estate market of last year is starting to cool off. Homes that would have sold in hours a year ago are now sitting on the market much longer. If you are selling, you will want to consider ways to make your home more attractive financially.

For most buyers, financing is a crucial part of their decision regarding which home to buy. The fact is most buyers can’t afford to pay cash for a home, so a key issue will be whether they can afford your home and the payments that buying it will require. That question is even more relevant in today’s environment of higher home prices and rising interest rates. Here are some points to consider:

Offer Owner Financing: If you have a lot of equity in your home, you may be able to offer to “hold financing” in the form of a second mortgage for your buyer. That means the buyer will get a mortgage from a traditional lender for, say 80% of the purchase price, and you will set up a payment plan with them for the remaining 20%. By collecting the full price of your home plus interest as the loan is repaid, you can actually end up with even more money from your sale.

Sounds easy, but there are caveats. “Secret seconds” that are kept off the records are a form of mortgage fraud, and I don’t recommend you consider any side financing deals that are not above board. The lender that will be financing the first mortgage for your buyer must approve the deal, so run your financing proposal by a mortgage professional first to make sure it is acceptable. Then use a real estate attorney or a service such as Circle Lending to properly set up your loan and ensure it is recorded in the public records.

Spell It Out: Ever notice how loans for everything from cars to jewelry focus on “low monthly payments?” Prospective homebuyers may not have taken the time to investigate financing before they started shopping, and may have no clue the payment options available for a home in your price range. A mortgage broker or loan officer will likely be more than happy to create a financing sheet that details payment options for various types of loans; after all, it gives them the chance to get in front of prospective customers.

Help Out: If coming up with cash at closing will be a problem for your buyer, you may be able to help by contributing toward the closing costs and/or participating in a down payment grant program such as the Nehemiah program (http://www.nehemiahcorp.org/), Neighborhood Gold (www.neighborhoodgold.com) or AmeriDream (www.AmeriDream.org). Consult with a mortgage professional to find out what types of closing costs you can help pay, and how much you can contribute. Some lenders, for example, will limit contributions from the seller to 3% or 6% of the sales price, depending on the amount of the down payment.

Lower Their Payments: You may be able to offer to pay discount points for your buyer. Points lower the interest rate the borrower pays, and can make their payments more affordable. Again, run it by a mortgage professional first.

Make It Easy: For $300 -- $500, you can offer to pay for a home warranty, which will help ease your buyer’s worries about costly home repairs the first year. Your real estate or mortgage professional can give you information on companies that offer home warranties in your area. Since you don’t have to pay for the policy until your home sells, it should be a no-brainer.

Don’t Waste Time: Ask your buyers to get pre-approved for financing before accepting their contract. This helps you avoid wasting time tying up your home with borrowers who can’t qualify for a loan.

Buy Upgrades: You may be able to include an allowance for upgrades or repairs in your deal. You may also offer to pay homeowner or condominium dues, or a special assessment for a certain period of time.

And a final warning: Do not list your home for sale if you think you might want to refinance it if it doesn’t sell. Most lenders frown on refinancing homes that have been recently listed.

Gerri Detweiler is credit expert for Credit.com and a licensed mortgage broker in Florida. She is also the author of three books, including The Ultimate Credit Handbook.