Seller Financing Returns as Mortgage Rates Rise
An old tool is back as mortgage rates rise: Seller financing often occurs when buyers hope to save on closing costs and sellers want top dollar for their home.
NEW YORK – Real estate professionals report an increasing interest in seller financing for transactions involving residential properties after the rise in interest rates.
Seller financing was almost nonexistent when mortgage rates hit record lows, but it’s not a new tool. It’s used most often when buyers seek to increase their purchasing power by saving on closing costs or paying lower interest rates – and, at the same time, by sellers who want buyers to make a full-price or higher offer on the home.
However, sellers who give buyers the title upfront face significant risk if they provide financing.
David Dweck, a private investor from Boca Raton whose portfolio consists of single-family homes in Florida and North Carolina, says he carefully vets his buyers when he agrees to provide financing.
“I underwrite it as if I’m a bank,” he says. “I want to have a reasonable expectation that the borrower will pay me back.”
Dweck requires a down payment of at least 20% and will only consider seller financing if the buyer pays full price or above.
Danny Hertzberg, an agent with The Jills Zeder Group at Coldwell Banker in Miami Beach, says that while owner financing is often discussed between buyers and sellers, it is rarely consummated. He noted its most likely to occur when the house has either been languishing on the market without any offers, or the offers come in too low.
“There has to be some carrot for the seller to consider it,” he said. “Usually that carrot is a buyer offering full asking price or close to it.”
Source: Wall Street Journal (07/26/23) Friedman, Robyn
© Copyright 2023 INFORMATION INC., Bethesda, MD (301) 215-4688