Big Apple Financing

The New York Times has an article about the increasing popularity of seller financing.  Bob Tedeschi writes in his “Mortgages” column about how seller financing had declined during the recent years of low interest rates and easy loans.  Today the interest rates are still low, but the ability to obtain loans has been restricted.  As a result, owners and developers are again looking to owner financing to move the units.

Tedeschi writes that mortgage seekers in a heavily condominiumized (that might be a word) market such as New York have an additional burden when  buying in new developments.  It seems that Fannie Mae and Freddie Mac rules preclude approving a mortgage for a condo unit unless at least 70% of the units have been sold (although Fannie will sometimes lower that to as low as 50%).  That makes it tough unless the buyers can come up with all cash or have access to unconventional mortgage sources.  Enter seller financing by the developer.  Typically they will require a substantial down payment of 35% or more and the note will have a balloon due after 5 years or so.  The expectation is that things will have changed sufficiently enough for the buyer to refinance at that time.

Just one more example about how this niche mechanism makes real estate deals happen.