Bear with me on these numbers: they are meaningful to Santa Barbara home buyers and sellers alike. One of the most meaningful calculations The National Association of Realtors® makes is the Housing Affordability Index. An Index value of 100 means that the average (actually, ‘median’) family’s income is exactly the right amount to qualify for a typical 20% down mortgage on a median-priced home. It would be tight, but doable.
That’s what a “100” means. In the latest report this summer, the Index across the whole country was higher than 200! … 204.3, to be precise. Up there in “never-before” territory. And it’s been there since January!
Yet banks are still not lining up to approve mortgages – for the number of reasons we’ve talked about before. It’s why some buyers and sellers have started to look for alternative ways to sell and buy a home; and begun to look in the “for sale by owner” (“FSBO”) realm.
Santa Barbara and Montecito homes for sale by owner aren't being sold through a licensed agent, forcing a potential buyer or his agent to deal with the seller directly. If the home has sat on the market for an extended period and the homeowner does not have a mortgage to pay off, a buyer can sometimes interest the seller in owner self-financing. In such a deal, the buyer gives his or her down payment and installment payments directly to the seller. As anyone would guess, this approach has its own special Pros and Cons.
The biggest Pro for the buyer is, obviously, easier financing. The biggest Pro for a seller is the potential to make a sale where none was possible before. As can be inferred from the Affordability Index, many people can afford a mortgage, but cannot find a traditional lender.
But speaking of problems, there are some ‘Cons’ to consider. If the buyer stops making payments, the seller must evict and foreclose on the property -- both time-consuming and costly procedures. A For Sale by Owner financing deal gone sour is especially problematic if the seller is dependent on the income from the home. And buyers need to pay attention, too. When dealing with a For Sale by Owner transaction, there are a variety of potential legal loopholes and title issues that traditional sale and mortgage disclosures and contracts are specifically set up to avoid. In all cases, it is wise to consult a trusted financial professional and attorney before signing anything.