Can Financing Give Your Home More “Sales Appeal”?
June 30th, 2008 | categories: Selling Real Estate in Coconut Grove
Authored by our Guest Contributor, James Venney:
As your Realtor will tell you, there are specific steps you need to take to give your home more “sales appeal”. Some of the more important issues are re-landscaping to improve curb appeal, de-cluttering both the interior and exterior of the home, painting and addressing any items of deferred maintenance. In addition to these items, there are things we can do with creative financing that will dramatically enhance the salability of your home without you having to hold seller financing. A perfect example is the seller paid buy down. This involves the seller giving a credit at closing to the buyer to pay for an interest rate buy down on the buyer’s new mortgage.
Let’s take a look at how attractive this can be for the buyer and as an effective marketing tool for your home…..
As illustrated in this flyer (sellers-buydown.JPG) by offering sellers buy down of just 2% of the purchase price ($10,000 in this case or 2.5% of the loan amount) we lower the buyer’s monthly payment by $416.67! More importantly we lower the monthly income needed to qualify for the mortgage by almost $1,000 thus dramatically expanding the pool of potential buyers for your home. To think of it another way, the seller in this example would have to lower the price of his home by more than $80,000 to generate the same monthly payment for the buyer.
But wait….there’s more….as illustrated in this cost analysis (sellers-advantage-cost-analysis_page_1.JPG) as a result of the lower interest rate the buyer has saved $25,000 over just the first 5 years. What if the buyer were to invest the $416.67 in monthly savings into a side fund earning a conservative 6% rate of return…in the first 5 years that account would grow to $29,094 and in 24.25 years the buyer would reach the “Freedom Point” which is the point where the balance of the investment account is greater than the remaining balance of the mortgage!
Of course, the buyer could have also applied the $416.67 towards reducing the principle balance of the mortgage each month. However, smart borrowers know that in most cases no form of making additional payments towards the principle balance is the fastest way to pay off your mortgage but that is a topic for another post (hint….think compound interest).