EXAMPLE NO. 2
This is the same home as in Example No. 1 -- a modest, older, single family home that does not qualify for typical financing. Assume in this case that the home is subject to an assumable $75,000 loan payable at $600 per month with 7% interest. With $13,500 down the Seller would have to take back a second for $46,500 for the balance of the selling price of $135,000. Assume that the second is payable at $448.74 per month, including 10% interest, with a balloon due in 10 years. The approximate amount of the balloon would be $33,900.
Several options available to the Seller are:
Option 2A: Sell 119 payments for $26,300 cash now. With the $13,500 down payment, that's $39,800 now, plus the Seller gets the $33,900 balloon in 10 years.
Option 2B: Sell 119 payments and 50% of the balloon for $30,200 cash now. With the $13,500 down payment, that's $43,700 cash now, plus the Seller gets the remaining balloon of $16,950 in 10 years.
Option 2C: Sell for $46,500 (full price) payable as $23,250 now and an additional $23,250 in 99 months. With the down payment of $13,500 that's $36,750 cash now, plus an additional $23,250 in 99 months, for a total of $60,000 for the equity.
Option 2D: Sell the entire note for $34,300 cash now. With the $13,500 down payment that's a total of $47,800 cash now. The discount makes this the poorest choice, but if the Seller needs cash now it may be better than no sale, or waiting for a long time to sell at a substantially reduced price to the Buyer willing to pay all cash for the Seller's equity.
NO. 1 EXAMPLE NO. 2 EXAMPLE