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“font-family: Calibri;”>Nationwide, more than 10 percent of home purchase deals are being financed by sellers, and seller-financing is gaining ground on the barrier island as an end-runaround excessive paperwork and super-strict underwriting standards required for most bank financing.
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“font-family: Calibri;”>“Some buyers don’t want to deal with all the bank restrictions,” says Erika Ross, a realtor with the Moorings Realty Company. “There is so much red tape they prefer to deal with an individual. Most buyers we see are qualified and could get a loan, but they want to avoid the hassles.”
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“font-family: Calibri;”>For sellers, carrying the paper on a property may make the difference between having a deal put together or not, according to Ross.
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“font-family: Calibri;”>“With the market the way it is, people are trying to think outside of the box to find ways of increasing the potential pool of buyers for their homes,” she says.
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“font-family: Calibri;”>“Sellers are aware they need to put a little more skin in the game and do whatever they can to get the home sold,” says Cheryl Gerstner, owner of Palm Pointe Realty. “I am holding paper now for a property of mine I sold. The buyer had a significant down payment and I held the rest. They make monthly payments and it works out well for me and them. It is a win-win.”
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“font-family: Calibri;”>“Bank financing is horrible,” says Michael Thorpe, co-owner of Treasure Coast, Sotheby’s International Realty. “It is a dirty little secret and it hasn’t gotten any better. We have been doing seller financing and trades for more than a year as way to keep the price of a house up and not sell it at a distressed price.”
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“font-family: Calibri;”>Local banks such as CenterState Bank, Seascoast Bank and Marine Bank that do portfolio loans have more room to maneuver than big banks like Chase, Wells Fargo and Bank of America, because they don’t resell portfolio loans into a hyper-regulated secondary market, but generally under current lending standards anyone with any blemish on their credit report has a hard time getting bank financing.
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“font-family: Calibri;”>Too much credit card debt, a prior bankruptcy or problems resulting from divorce or medical bills typically torpedo bank deals, even though the buyer may have an adequate down payment and sufficient income to make mortgage payments.
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“font-family: Calibri;”>Self-employed buyers and people who have changed jobs also run into problems verifying income and work history. Banks want to see two years of continuous employment and are not sympathetic to small business owners who take legitimate deductions for expenses that reduce their income on paper.
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“font-family: Calibri;”>Hemmed in by underwriting standards emanating from Fannie, Freddie and FHA, and fearful of making bad loans they will have to buy back, banks are rigid and sometimes do not use common sense in assessing the creditworthiness of potential buyers, according to island brokers, bankers and buyers.
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“font-family: Calibri;”>Under those circumstances, the advantages of seller financing for buyers are obvious. If they have a solid down payment and proof of income sufficient to make monthly mortgage payments, they can make a deal with an individual who wants to sell a home much more quickly and easily than with a rule-bound lending institution.
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“font-family: Calibri;”>Sellers have flexibility to look beneath a less than perfect credit score or specific credit blemish to see the actual circumstances that caused the problem, and a deal can be closed in a few weeks instead of several months.
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“font-family: Calibri;”>Low loan costs are another benefit for buyers. In a private deal, buyers typically save most or all the money that would have gone to points, origination fees, credit reports and appraisals.
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“font-family: Calibri;”>Buyers also know exactly who they are dealing with, which may not be the case if a bank loan is resold. Instead of an unknown person on the other end of a phone, buyers can discuss any loan modifications or payment problems with someone they have shaken hands with and looked in the eye.
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“font-family: Calibri;”>The potential advantages of private deals are even greater for sellers.
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“font-family: Calibri;”>Because they are offering buyers something unusual in the market – quick closing and access to relatively easy financing – sellers who carry paper may be able to attract more interest, command a higher price and charge an interest rate that is a point or two above the prevailing rate.
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“font-family: Calibri;”>In the current low-interest environment, that can be a key point.
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“font-family: Calibri;”>Investors have to lock their money up for 5 years to get a 1 percent return on funds they sink into T-bills and the stock market has not offered significant growth in years.
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“font-family: Calibri;”>Under those circumstances, a steady 5 percent or 6 percent return on money starts to look like a bonanza.
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“font-family: Calibri;”>Seller may gain tax advantages by spreading capital gains over a number years instead of taking a big hit all at once and they benefit from the same quick closing that makes life easier for buyers.
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“font-family: Calibri;”>“People want to get the deal done and move on with their lives,” says Ross.
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“font-family: Calibri;”>Sellers also have the ultimate security of being able to take back their property and sell it again if a buyer defaults. Deeds are recorded with the county in seller-financed deals, same as with bank deals, and sellers have the same rights and options banks do if payments aren’t made in a timely way.
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“font-family: Calibri;”>“In today’s market, owner financing can be an effective tool to generate interest in a property,” says long-time island resident George Fetterolf, who is selling a $1.75 million waterfront home in the Anchor section of the Moorings. “I decided it would be a good twist to get more people in to look at the house.”
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“font-family: Calibri;”>Fetterolf, a semi-retired businessman who owns a number of properties and companies, was equally motived by the investment potential of carrying paper.
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“font-family: Calibri;”>“If you are fortunate enough to own a property free and clear, which is the case with our home in the Moorings, and you sell it, what are you going to do with the money? If I put in the bank, they are going to pay me less than 1 percent in interest.
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“font-family: Calibri;”>“Anybody who sells and asset today and doesn’t need the money right away is looking for someplace to park their money where it will make some money and this is a good option.
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“font-family: Calibri;”>“I am only offering the deal to qualified buyers. They have to show me their employment and time in grade and come up with a 25percent down payment.
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“font-family: Calibri;”>“Whether they pay the loan off long-term or refinance after a few years, I am getting a steady 5percent on my money with excellent security.
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“font-family: Calibri;”>“I am happy to be the bank.”
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“font-family: Calibri;”>A little bit of arithmetic shows why.
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“font-family: Calibri;”>A buyer taking advantage of the loan Fetterolf is offering would make a $437,000 down payment and finance $1.31 million, if the home sells as listed. If the deal went bad and Fetterolf had to take the house back, he would be ahead by almost half a million dollars still have his original asset.
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“font-family: Calibri;”>If the buyer stayed in the house and paid if off over 30 years, Fetterolf would net a $1.25 million pre-tax profit on the deal, nearly double the amount he would see if he invested $1.31 million in 30-year treasury notes at today’s interest rate.
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“line-height: 115%; font-size: 12pt;”>“There has been good interest in the home,” Fetterolf says. “Erika Ross and The Moorings have done a great job of marketing. It is an extraordinary property neighbors in a great neighborhood.”
