"Seller Financing" Terms

More Seller Financing --
& More Flexible Terms

Sellers Terms: Cash, Contract for Deed, Contract/Deed w/Assumption, Conventional, DVA, FHA

--MLS listing

I'm seeing lots more listings like the one above.

If you don't speak "Realtor," here's a quick glossary:

Contract for deed: Buyer makes monthly payments to the Seller, who retains title; title transfers when the last payment is made.

DVA: Department of Veteran Affairs loan. Great terms, zero down -- for those who qualify.

FHA: Federal Housing Administration. FHA-insured loans are the source of financing in today's housing market.

Conventional: a traditional bank-originated mortgage, typically packaged and re-sold to the secondary markets -- at least when the amount is less than $417k (called "conforming") in most parts of the country.

Distressed Markets Show Improvement

What Goes Down . . . Must Come Up?

When buying is cheaper than renting, markets begin to turn. At the current rate of sales, there is less than three months of inventory in the Sacramento market. In normal times, that would indicate a seller’s market. Except these are not normal times. The unemployment rate in the county is 11.3 percent, the highest in decades. That will prompt more foreclosures all by itself. Furthermore, banks have lifted various processing moratoriums that lowered foreclosures last fall.

--David Streitfeld, "Where Home Prices Crashed Early, Signs of a Rebound"; The New York Times (5/5/09)

Nice piece in the NYT encapsulating the competing trends roiling the housing market nationally.

On the one hand, housing prices -- especially foreclosures -- are tantalizingly cheap.

On the other hand, the severe recession is hamstringing people's purchasing power, and ability to qualify for mortgages.

No surprise, then, that cash purchases and various types of alternative financing (contracts for deed, Seller-provided second mortgages) are on the upswing.

Sellers Offer Goodies in lieu of Price Cuts

A Price Cut By Any Other Name

When is a home price cut not a price cut?

When it's billed as "Seller financing" (or other creative Buyer inducements).

In a soft rental market, landlords will do practically anything to entice prospective renters without actually lowering their nominal rental rates.

By far the most popular gambit is free rent (typically, one or even two months). Next most popular are "freebies": free plasma TV, free tickets to Hawaii, etc.

Similarly, home owners who are loathe to take (more) price reductions are starting to offer other Buyer incentives.

Anecdotally, I'm seeing more instances of Sellers who are trying to move upper-bracket homes dangle attractive financing terms: second mortgages on attractive terms; contracts for deed (essentially, a Seller-provided mortgage, but one where title doesn't transfer until the last payment is made); etc.

Which makes sense: one of the big impediments to selling an expensive home today is the premium attached to jumbo loans.

I've yet to see the "Buy this house, get the [collector sports car in the garage free] pitch," but it may very well be coming . . .