When Ronald Reagan became president, Disco was hot, and home loan rates reached 19%! Out of necessity agents became creative with financing for the few real estate sales being done. One such tool was a “Wrap Around” or “Wrap”. More home sales closed because of the development of “creative financing”; which typically turned out to be a Wrap.
Today, we again find ourselves in need of creative financing. Up-scale homes, requiring ‘jumbo loans’ are not experiencing the same resurgence as the lower cost, “conforming” group of homes. In fact, homes with prices over $700,000 are selling at a much slower pace, if they sell at all. Their prices are still falling while lower priced, ‘tract’ homes are rebounding. It’s all about the financing or, lack of it.
Lenders are requiring at least 20% down from the buyer on prices above $463,300. With the ‘Jumbo’ limit of $729,750 and minimum of 20% down many buyers simply don’t have enough cash. Previously helpful, second loans offered by sellers must be over and above the minimum 20% cash from the buyer. “Willing sellers and qualified buyers” (without 20%+ cash) for jumbo sales are being held at bay do to a significantly tightened lending atmosphere.
Even if an upper-end home finds a buyer with a large down payment good luck in the home appraising. Lender’s are now being required to accept only those appraisals with 2 comparable sales within the last 90 days. So, with fewer comparable sales, and dropping prices many higher priced home sales don’t close due to very low appraised values.
However, the “Wrap” is making a come back (more properly called an “All Inclusive Deed of Trust” or A.I.D.T.). A willing and capable buyer can pay the seller’s price and avoid the lender limits and appraisal constrictions. Additionally, since there are no lender fees the money normally spent on closing costs can be added to the down payment.
In the last 30 days I proposed 4 AIDTs for stagnant Hollister and San Juan Bautista up-scale homes. Morgan Hill and Gilroy ‘Jumbo’ homes could also benefit form an AIDT sale.
When one of these AIDT sales records there will be a new comparable property appraisers can use to justify the higher prices nice homes should bring. THEN, we’ll begin to see the ‘Jumbo’ home sales moving toward their earlier values. I love problem solving!