Archive for the ‘Finance’ Category

Wraparound What?!

Home sellers look to their listing agent for assistance in many areas. If I had to pick what I thought might be the biggest, I’d have to say all around problem solving skills.

In any market, in any economy, we need to think about how and what we can do to help our customers sell their home.

Not just open houses, or property flyers, but creative ways to assist buyers and sellers to come to an agreement on the purchase/sale of a home.

The Wraparound Mortgage is something we all should be aware of and be able to discuss with our clients.

A Wraparound mortgage includes the remaining balance of an existing first mortgage (to which it is subordinate) plus an additional amount carried by the seller. It’s similar to a contract of sale, except that title to the property is transferred and may be insured by a policy of title insurance. When a deed of trust is used rather than a mortgage instrument, it is usually referred to as an all-inclusive deed of trust, but has also been referred to as a hold-harmless or overlapping deed of trust.

When should something like this be used?

1.  When there is a locked in loan on the subject property.

2.  When the seller wants/needs to sell, but has a poor/risky buyer with a small down payment who is willing to purchase the property.

3.  When there is an overpriced property and the seller is firm on the price, but flexible on the terms of sale.

4.  When the seller does not want to lose the benefit of a low interest loan, but is anxious to sell.

5.   With a buyer who, in all likelihood, will not be approved by a lender for the loan needed to purchase the property.

6.  When there’s insufficient cash for a down payment.

When shouldn’t a wraparound be used?

It should not be used when there is an acceleration or any other alienation clause in any of the mortgages or deeds of trust that are to remain on the subject property.

It would also be prudent not to use the wraparound with an ARM.

How is this beneficial to a Seller?

1.  Similar to full Seller financing, a seller can obtain a much higher effective interest rate on the all-inclusive trust deed.

2.  The present financing of the primary mortgage is retained should it become necessary to repossess the subject property in the future.

3.  If there is a reposession, it can be done at a trustee sale while a contract sale requires a court judgement.

How is this beneficial to a Buyer?

1.  Buyer can now purchase a property that they couldn’t qualify using traditional means

2.  Buyer saves money by not having to pay for an appraisal, loan fees, and loan points

3.  The subject property is acquired with an owner’s policy of title insurance

4.  Buyer is responsible for one payment

There are also precautions that any Buyer and Seller should be aware of.

As a Realtor, do your homework and be sure you speak with a mentor or a colleague who has experience in this area before talking about it with any client or prospect.

As a Buyer or Seller, you also need to do your home work and understand the wraparound mortgage before getting involved in the process.

It’s an interesting option that can facilitate a real estate transaction when traditional financing options won’t work.

Feel free to share your thoughts by leaving a comment or call me at the office: 760-934-5088.

For information on residential and commercial real estate in Mammoth Lakes, Ca, please log onto my real estate website at www.easternsierraproperties.com

Thank you for your time and consideration!

Advertisements

Seller Carry back

Seller Carry back / Owner Financing

Have you noticed more Owner Financing opportunities in your MLS or in the local newspaper real estate classifieds?

What does that mean? Well, it means that the seller assists the buyer by acting as a lender and financing part or all of the sale of the sellers’ property. The term applied to such financing is carryback financing. The seller versus a lending institution, is literally carrying back part or all of the financing on the property.

Can this be applied to different types of real estate? Sure! Large parcels, lots, mobile homes, mobile homes on a lot or large parcel, single family residences, condominiums, motels …. you get the idea.

Who benefits? The seller and buyer! Why?  For the buyer, the rigorous lender qualifications  aren’t involved, seller lending terms may be more favorable than those offered by a lending institution,  lower closing costs and reduced personal liability ( the property sold is the security for the debt ).

Benefits for the seller include a larger number of prospective buyers, an opportunity to defer taxes on an installment sale, a higher sale price plus terms that provide for monthly income and a cash payment for all or a portion of the note carried.

Sounds great, huh?! Well, why aren’t more people doing it? Because there’s a lot to it!

 If you, as a buyer are interested in going down this road, I  recommend that you work with a Realtor who has extensive experience with seller carry back transactions and/or an attorney, with the same type of seller carry back experience. Each of these people will discuss and review your offer/ counter offer terms and make sure that your risk is minimized, that you understand your responsibilities and that the reward of homeownership is truly within your grasp.

Here are two local legal contacts in Mammoth Lakes:

  1. Jim Reed of Liebersbach, Mohun, Carney & Reed at 760-934-4558
  2. Therese Henkel at 760-934-3133

Please share your thoughts by leaving a comment or call me, toll-free, at 800-231-0622.

For more information on the Mammoth Lakes real estate market, please log onto my real estate website at www.easternsierraproperties.com