top 2023 home financing strategies for a win win win!

As the market softens and hopefully returns quickly to a balanced and healthy marketplace, here are my top 5 financing strategies to help you stand out.

A great Realtor and Loan Officer duo will obsess over knowledge gathering (such as this guide) and being attuned to their mutual client and then deploying one of these tools to create a win-win-win.

1. Seller Buy Downs (SBD)

This strategy is an excellent option in an increasing interest rate environment where a market shift in favor of buyers over sellers exists.

The Seller Buy Down strategy, or SBD for short, is for a property seller to offer a credit for the respective buyer to permanently buy down the mortgage interest rate (if the buyer requires a mortgage of course).

In most buyer’s markets at certain price points, most Realtors may try to negotiate Seller closing cost credits, but the cash-to-close amount may not be as important vs. the total recurring monthly payment for the respective homebuyer.

$10k back towards an interest buy down could potentially mean a $100+ monthly savings in payments, let alone the long-term interest savings by carrying a lower interest rate.

2. Single Paid Mortgage Insurance (SPMI)

Most consumers or even Real Estate professionals are unaware that there are five types of Private Mortgage Insurance or PMI for short, which is required in most cases when a homebuyer mortgages anything more than 80% of the value of the home.

The most traditional PMI is Borrower Paid Mortgage Insurance (BPMI), which basically requires the homebuyer to pay an extra monthly payment to mitigate the risk of their home loan.

However, depending on the right elements, Single Paid Mortgage Insurance, or SPMI for short, can lower the monthly payment for the homebuyer by having the PMI bought out upfront.

A common tactic in certain market conditions can yield the opportunity for a buyer to negotiate with a property seller to credit funds towards their closing costs which can then be used for the SPMI buy-out.

This is a great tactic for the sub 20% down homebuyer securing Conventional financing that doesn’t have the best credit scores yielding a very high PMI amount and planning on retaining the property for a long time.

3. Appraisal Gap Strategy

In some cases, especially in a competitive market, waiving the appraisal contingency is common.

An ingenious method to consider is the “appraisal gap strategy” in case the subject property does NOT appraise for the purchase price (say $650k for example).

Here is, in brief, what an appraisal gap strategy is:

Say the home does NOT appraise for $650k, but for $625k (for example) leaving a $25k shortfall. In most cases, the respective buyer would need to come up with the extra $25k dollar-for-dollar above their 20% down payment. The appraisal gap strategy softens this substantially.

At a $650k purchase price with 20% down, the loan amount would be $520k. If for any reason the home appraises for $625k (for example), the $520k loan amount is now NOT 80% of $650k, but rather 84% of the new purchase price ($625k) which would warrant PMI (Private Mortgage Insurance).

However, we can buy out the PMI for about $1,700.00 upfront which is much better than bridging the potential appraisal “shortage” of $25k! The $1,700 would just be part of the closing costs and there will not be any PMI.

4. The Powerbid Preapproval

The days of a standard Pre-approval are over, especially with Conventional financing.

Pre-commitment > Pre-approval > Pre-qualification

Now, we can underwrite a homebuyer’s loan application before he or she is officially under a contract which has resulted in a contract-to-clear-to-close process of only 7-10 days tops, with an appraisal.

This dramatically increases the strength of the respective Buyer’s financing and increases the confidence in that buyer’s offer knowing 90% of all items have already been cleared by their respective lender.

5. Lock ‘n Shop

With interest rates increasing, most homebuyers are frantically rushing to secure terms on a property to lock in an interest rate, but now, that same homebuyer can lock an interest rate up to 90 days without having a specific property in mind.

This has been a great tool in helping them reduce FOMO (Fear Of Missing Out).

xo- KG