Partial financing can offer benefits for buyers intending to pay all cash for a home.

 
Not all buyers have the resources to even consider paying cash for their residence or second home. For those who do, Strategic Financing can offer some opportunities they may not have considered.
Today, we're touching on some ideas that may be of interest to your all-cash buyers.

 

There are definitely some benefits to paying cash for real estate ...

...yet there are also some drawbacks and tradeoffs when comparing a cash deal to one that uses financing.
  
Cash Purchase Benefits:
  
           - Usually a straightforward, clean deal
           - Strong negotiating position when making an offer
           - Appraisal not required (though recommended)
           - No mortgage payments
           - Fewer closing costs, no escrows
 
  
However, Strategic Financing can provide buyers with planning and cash-flow options that may not be available with a cash purchase.
  
Financing Benefits:
 
      - Leverage - A basic principle of real estate investment;
                             using borrowed money to own property,
                             increasing rate of return; putting less of one's
                             own cash at risk.
 
      - Liquidity - Money that would have been tied up in a
                            property is readily available as a cash reserve
                            fund or for another investment.
  
      - Diversification - Another basic investment principle;
                             spreading cash exposure among different
                             investments, reducing overall risk.
  
      - Tax Deduction - Mortgage interest is tax deductible
                             (within limits) for primary residences and
                             second homes when itemizing deductions.
                             This can reduce the effective mortgage interest
                             rate by up to 1% in most tax brackets. See your
                             tax professional.
  
  
When committing cash to 100% of the purchase,

buyers are tying up their money to that single specific use for as long as they own the property.

 

If they can invest or use some of that cash and realize a good return or benefit, it might make sense to finance at least partof the purchase.

 

  

 

Liquidity may be the strongest consideration for many buyers.

 

Real estate traditionally takes longer to sell than stocks, bonds, mutual funds, jewelry, or other assets. This lag time between deciding or needing to sell and actually receiving money from the sale must be taken into account.
 
If money tied up in property is needed quickly by the owner, he or she may be forced to sell at a drastically reduced price.


For many cash buyers, freeing up some of their money faroutweighs any financing costs. Only by knowing what loan programs are available to them (and at what cost) can they make an informed decision.
 

Here are some examples of Strategic Financing when a buyer has cash available:

          

           - FNMA's Delayed Financing Exemption - an immediate

             cash-out of 50-60% of the all-cash purchase price.

 

           - Since lower LTVs (Loan-To-Value ratios) and shorter

              loan periods bring better rates, choose the LTV and

              time frame for which the rate is most offset by the

              interest deduction benefit. Properly structured, this can

              deliver an effective interest rate under 1.5% in our

              current rate environment.

 

           - On upper-bracket properties normally needing Jumbo

             financing, use enough down payment to bring the loan

             amount under the $417,000 conforming limit, receiving

             better terms and rate.

 

           - Consider a 5/1 or 7/1 ARM at 50% - 60% LTV for

             manageable monthly payments and low borrowing cost.

 

Remember that all of these methods (and others) provide buyers with a combination of LeverageLiquidityDiversification, andtax deduction benefits.
  
Whether you have buyers with available cash for their purchase, or ones with just 5% or 10% down payment, call me to present the financing options that will help them decide what's in their best financial interest.
  
Well-informed buyers make for much smoother transactions. 
  
Let me reinforce the trust
   your buyer has placed in you! sm

All information provided by Chris Carter. See contact information below.

 

Chris Carter                               Mortgage Advisor / Originator 
239 898-5455 cell                                                                          NMLS 861361
  
  
  
  
Paramount Residential Mortgage Group, Inc
4375 Radio Rd
Naples, FL  34104
239 659-1660 office                                                                 © 2015 Chris Carter