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Creative financing might help sell your home

It's not easy to sell your home these days, but it's not all that easy to buy, either. Here's the problem in a nutshell: There's an excess of homes on the market, but the buyers who normally would be scooping them up (thanks to falling prices and low interest rates) can't get financing because the lenders have tightened up rules on who they'll lend money to.

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If stressed-out sellers and hard-to-qualify buyers could just join forces they could both achieve their goals. The answer may lie in what's commonly called "creative financing."

"This is the time to get creative," affirms real estate expert Wendy Patton, co-author of "Making Hard Cash in a Soft Real Estate Market."

"If you really want to sell your home, you need to expand your pool of buyers to include those people who want to buy a home but can't qualify for a standard mortgage at this time. This pool is actually much, much larger than the pool of buyers who can get a mortgage right now."

Or as management and marketing consultant Nan Andrews Amish puts it, "The goal is to make it easier for buyers to say 'yes.' This means creating better value for the buyer or less risk, or easier financing."

Scott Christiansen, the senior mortgage originator at Orange, Calif.-based WestCal Mortgage Corp., agrees, "In this market people are getting much more excited about doing whatever they can to sell a property." Every week since the subprime fallout, he says, new financing programs make their debut. And in some cases, sellers are choosing to carry buyers in their entirety.

Ready to get creative about financing to entice buyers? There are three major options:

3 top ways to get creative
Home sellers stymied by market conditions should consider these techniques to spark a sale.
1. See if your lender will allow a mortgage assumption.
2. Consider a lease-to-own arrangement.
3. Offer some form of seller financing.

1. See if your lender will allow a mortgage assumption.
In this sort of agreement, the buyer takes over payments on an existing mortgage. If that loan came with a low rate, assuming the loan could be advantageous. Not to mention, the buyer can save on higher closing costs associated with new mortgage debt.

While banks have traditionally not allowed assumable mortgages and some mortgage experts don't see that changing -- especially on 30-year fixed rate loans -- others are seeing some cases of it.

"Most mortgages are nonassumable," says Patton, but "given the challenged market conditions many areas are experiencing, this may be negotiable with the lender."

With a homeowner in financial trouble, for example, the lender would often rather allow the loan be assumed than foreclose on the property, notes Jason R. Hanson, a real estate investor.

Christiansen says a number of large banks do allow assumptions on certain new and existing adjustable-rate mortgages. "I wouldn't be surprised if more continue to do that," he says. "It's worth checking out."

When an assumable mortgage is available and favorable, it would certainly entice buyers.

Before promoting it, though, 40-year real estate veteran Arnold Peck, president and owner of Milford, Conn.-based ERA Property World, says he would make sure both the rate and terms -- such as prepayment penalties -- would make it desirable. "I just had a fellow with a $100,000 prepayment penalty on a $300,000 loan."

For protection, any seller whose lender is allowing a mortgage assumption should obtain a written release from further liability. In other words, never take it for granted that just because the buyer qualified for the deal, he will pay each month.

Next: "The buyer becomes a tenant for now."
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