Lodinews.com

default avatar
Welcome to the site! Login or Signup below.
|
||
Logout|My Dashboard

President’s Corner Home sellers are once again financing buyers with poor credit

Print
Font Size:
Default font size
Larger font size

Kerry Suess

Posted: Saturday, May 28, 2011 6:47 am | Updated: 10:13 am, Sat May 28, 2011.

Jonathan A. Goodman, from REALTOR Mag at www.realtor.org, says that in today’s stymied real estate market, lenders are more cautious about making loans and sellers are more inclined to agree to carry financing to sell their properties more quickly and at a better price. Here’s a look at how installment sales could work for your clients.

Installment sales are structured so that the seller receives payments for parts of the purchase price over a period of time following the closing. If the seller either owns a property outright or has the resources to pay off any remaining mortgage, installment sales can be beneficial to both parties. Owner financing may also enable a seller to defer income taxes when at least one installment payment is received after the tax year in which the transaction closed. The seller recognizes the gain over the taxable years in which the payments are actually received.

Prashant Gopal, Bloomberg News, states that Sue and Douglas Reed knew no bank would give them a mortgage — not with a bankruptcy and two foreclosures fresh in their credit history. They turned to Hilarie Walters, whose childhood home on 15 acres in Marshall, Mich., had been on the market since 2009. The unemployed single mother of twins agreed in December to sell the property to the Reeds for $105,000. She also consented to a risky payment plan that in effect makes her the couple’s mortgage lender.

Financing provided by home sellers, popular in the 1980s when mortgage rates reached 18 percent, is making a comeback in markets such as Michigan that have been hit hard by foreclosures and where tightening lending standards and years of economic distress have drained the pool of creditworthy buyers. For a small but growing number of people, it’s the only way to get a deal done. “This is the American dream, and we’re going for it no matter what,” said Sue Reed, 56, who sells snacks from a trailer at estate auctions and going-out-of-business sales. “We’ll either make it or it will break us.”

Michigan, where unemployment is 10.3 percent, leads the nation with about 1,600 home listings advertising seller financing, according to Trulia Inc., a San Francisco real estate information company. It is followed by Florida, Ohio, California, Wisconsin, Minnesota and Texas. Currently the unemployment rate in California for April is 11.9 percent. Last year, 52,991 U.S. homes were purchased with various forms of owner financing, up 56 percent from 2008, said Realtors Property Resource LLC, a subsidiary of the National Association of Realtors, citing data collected from county record offices. Such deals accounted for 1.5 percent of all transactions in 2010.

“Anytime the market is in this much trouble, people have to find ways to get it to function,” said Dennis Capozza, a professor of finance at the University of Michigan in Ann Arbor. Capozza has direct experience with seller financing: He purchased a friend’s foreclosed home a couple years ago and allowed him to buy it back in installments. Home sales, weighed down by a 9 percent national jobless rate and tight credit, have languished even as 30-year mortgage rates remain below 5 percent. Loans insured by the Federal Housing Administration carried an average FICO score of 703 in March, compared with 629 two years earlier, highlighting that lenders are requiring stronger credit histories. FICO scores range from 300, the least creditworthy, to 850 for the best borrowers.

“The market is locked up because there’s no financing,” said Gordon Albrecht, executive vice president of FCI Lender Services Inc., an Anaheim Hills firm that oversees mortgages for private investors. “This is moving houses.” Market data was provided by Bloomberg News.  We have a lot of issues here in California, which the greater Lodi area is obviously a part of. Many would be home buyers have developed a history of credit problems, foreclosures or short sales in the past few years. Home prices have continued to settle and we often have problems with appraisals coming in below value on purchases. With interest so low, many investments like CD’s offer very low return and others can be risky. Seller financing may be a viable option to consider for homeowners with a lot of equity.

“I believe sellers are going to have to understand that if they want to obtain the price that they’re looking for, they may have to consider seller financing as an integral part of the transaction,” says Dean Bachelor, chairman and founder of the Platinum Group, a private-equity firm from Eden Prairie, Minnesota. Have you been in your home a long time and counted on your property to be your retirement or nest egg? Carrying the financing can usually help you sell quicker, get closer to your price and have income with interest. If you want to discuss your options always consult a Realtor.

Questions or comments can be made to Kerry Suess at larpres2011@yahoo.com.Home sellers are once again financing buyers with poor credit

Jonathan A. Goodman, from REALTOR Mag at www.realtor.org, says that in today’s stymied real estate market, lenders are more cautious about making loans and sellers are more inclined to agree to carry financing to sell their properties more quickly and at a better price. Here’s a look at how installment sales could work for your clients.

Installment sales are structured so that the seller receives payments for parts of the purchase price over a period of time following the closing. If the seller either owns a property outright or has the resources to pay off any remaining mortgage, installment sales can be beneficial to both parties. Owner financing may also enable a seller to defer income taxes when at least one installment payment is received after the tax year in which the transaction closed. The seller recognizes the gain over the taxable years in which the payments are actually received.

Prashant Gopal, Bloomberg News, states that Sue and Douglas Reed knew no bank would give them a mortgage — not with a bankruptcy and two foreclosures fresh in their credit history. They turned to Hilarie Walters, whose childhood home on 15 acres in Marshall, Mich., had been on the market since 2009. The unemployed single mother of twins agreed in December to sell the property to the Reeds for $105,000. She also consented to a risky payment plan that in effect makes her the couple’s mortgage lender.

Financing provided by home sellers, popular in the 1980s when mortgage rates reached 18 percent, is making a comeback in markets such as Michigan that have been hit hard by foreclosures and where tightening lending standards and years of economic distress have drained the pool of creditworthy buyers. For a small but growing number of people, it’s the only way to get a deal done. “This is the American dream, and we’re going for it no matter what,” said Sue Reed, 56, who sells snacks from a trailer at estate auctions and going-out-of-business sales. “We’ll either make it or it will break us.”

Michigan, where unemployment is 10.3 percent, leads the nation with about 1,600 home listings advertising seller financing, according to Trulia Inc., a San Francisco real estate information company. It is followed by Florida, Ohio, California, Wisconsin, Minnesota and Texas. Currently the unemployment rate in California for April is 11.9 percent. Last year, 52,991 U.S. homes were purchased with various forms of owner financing, up 56 percent from 2008, said Realtors Property Resource LLC, a subsidiary of the National Association of Realtors, citing data collected from county record offices. Such deals accounted for 1.5 percent of all transactions in 2010.

“Anytime the market is in this much trouble, people have to find ways to get it to function,” said Dennis Capozza, a professor of finance at the University of Michigan in Ann Arbor. Capozza has direct experience with seller financing: He purchased a friend’s foreclosed home a couple years ago and allowed him to buy it back in installments. Home sales, weighed down by a 9 percent national jobless rate and tight credit, have languished even as 30-year mortgage rates remain below 5 percent. Loans insured by the Federal Housing Administration carried an average FICO score of 703 in March, compared with 629 two years earlier, highlighting that lenders are requiring stronger credit histories. FICO scores range from 300, the least creditworthy, to 850 for the best borrowers.

“The market is locked up because there’s no financing,” said Gordon Albrecht, executive vice president of FCI Lender Services Inc., an Anaheim Hills firm that oversees mortgages for private investors. “This is moving houses.” Market data was provided by Bloomberg News.  We have a lot of issues here in California, which the greater Lodi area is obviously a part of. Many would be home buyers have developed a history of credit problems, foreclosures or short sales in the past few years. Home prices have continued to settle and we often have problems with appraisals coming in below value on purchases. With interest so low, many investments like CD’s offer very low return and others can be risky. Seller financing may be a viable option to consider for homeowners with a lot of equity.

“I believe sellers are going to have to understand that if they want to obtain the price that they’re looking for, they may have to consider seller financing as an integral part of the transaction,” says Dean Bachelor, chairman and founder of the Platinum Group, a private-equity firm from Eden Prairie, Minnesota. Have you been in your home a long time and counted on your property to be your retirement or nest egg? Carrying the financing can usually help you sell quicker, get closer to your price and have income with interest. If you want to discuss your options always consult a Realtor.

Questions or comments can be made to Kerry Suess at larpres2011@yahoo.com.

More about

More about

More about

Rules of Conduct

  • 1 Use your real name. You must register with your full first and last name before you can comment. (And don't pretend you're someone else.)
  • 2 Keep it clean. Please avoid obscene, vulgar, lewd, racist or sexually oriented language.
  • 3 Don't threaten. Threats of harming another person will not be tolerated.
  • 4 Be truthful. Don't lie about anyone or anything. Don't post unsubstantiated allegations, rumors or gossip that could harm the reputation of a person, company or organization.
  • 5 Be nice. No racism, sexism or any sort of -ism that is degrading to another person.
  • 6 Stay on topic. Make sure your comments are about the story. Don't insult each other.
  • 7 Tell us if the discussion is getting out of hand. Use the 'Report' link on each comment to let us know of abusive posts.
  • 8 Share what you know, and ask about what you don't.

Welcome to the discussion.

Loan Calculator

Mailing List

Subscribe to a mailing list to have daily news sent directly to your inbox.

  • Breaking News

    Would you like to receive breaking news alerts? Sign up now!

  • News Updates

    Would you like to receive our daily news headlines? Sign up now!

  • Sports Updates

    Would you like to receive our daily sports headlines? Sign up now!

Manage Your Lists