Home mortgage loans are not created from thin air. The home appraisal is vitally
important to financing your home loan at the correct value. If your property is
priced too high, it may sit on the market much longer than it has to. If it is priced
too low, you leave too much money on the table.

While home owner loans are gaining in popularity, there are some very important
things you need to know that will not only save you some money, but help make
you more money as well.

Some homes in smaller markets have a difficult time getting bank financing simply
because of the size of the mortgage loans. Size does matter. If your loan
requirements are too small for the traditional lenders, you have to create home
loan lending solutions.

That is exactly what happened in this case. The property seller provided a home
owner loan so the buyer could purchase the single family residence in a south
Georgia community.

The home owner determined the sale price of the property would be $45,000. The
buyer provided a $2,000 down payment. A promissory note was created for
$43,000 at 10% interest and interest only payments. There was a balloon payment
due in five years. The buyer's credit was fair, leaning towards good. No home
appraisal had been ordered.

Four payments had already been made on the loan, and things were moving along
according to plans. At this point the seller and I discussed the possibility of
pulling his cash out of the transaction with a note sale. Naturally he agreed to
take a look.

All of the required information was gathered, processed, and evaluated. We
developed a couple of options for the seller to consider. Of course one solution
was for a purchase of the whole note, and another was for all of the payments and
a portion of the balloon note.

Honestly, the quotes were very good. Either solution would have been an
excellent return for the seller. He actually agreed with me. Then he shared this
truth. He had sold the property to the buyer at a discount. Of course I asked how
much of a discount and he was not sure, but he thought it was pretty big.

When I checked the value of the property, I determined it was worth somewhere
between $66,000 and $77,000. Remember he sold it for $45,000. That means his
sale price discount was between 32% and 42%! In his efforts to quickly move the
property he actually left between $21,000 and $32,000 on the table! He went on to
provide a home owner loan to finance the transaction!

This was a perfect example of what not to do with seller financing. By agreeing to
such a large sale price discount, the seller simply left entirely too much money on
the table. Even though the cash we offered was substantial, it was not possible to
make up the difference created by such a large sale price discount.

Ideally, a home owner loan will justify a small premium in the sale price because of
the added risk by the property seller. The home appraisal is an excellent tool for
determining current market value. If he had simply ordered one he would have
easily made a lot more money on this transaction.

For reasons like this, our philosophy is the home appraisal of the property should
also be the contract sale price for the property. Even though we deal in
discounted mortgages, our payouts are typically much greater than you might
expect. In a case like this one, the seller would certainly have been able to
capture close to 90% of the money left on the table.

Each transaction is unique and requires special attention and analysis to provide
the biggest payout possible. If you are considering a seller provided home owner
loan for your buyer, you might want to take advantage of the services of a discount
mortgage professional. We can not only help you save money, but we can help you
make more money as well.

In the example described above, it was a great deal for the buyer, but not nearly
as good as it could have been for the property seller. The property seller chose to
maximize his cash flow and profits by having the transaction run to full term. Even
then he will never recapture the money lost with the discount he gave the buyer.

In the current residential home sales market, you really need to explore
non traditional lending sources. It will probably save you some time and money.

When you get a professional home appraisal to validate the sale price of your
property, that is a great start. From there your buyer evaluation, deal structure,
and subsequent mortgage loan will more closely resemble a win-win situation for
the seller and the buyer.

Copyright 2007| TDO Properties, LLC | All Rights Reserved

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