Simultaneous Closing
A
simultaneous closing is the name given to a trans-
action where a note is purchased at the same time
(simultaneously) the home is sold (at the closing
through the title company).
Here
is an example:
Home
seller is asking $100,000
Buyer has decent credit and has $10,000 for a down
payment.
Charter Financial usually requires a
loan to value
ratio of 80%.
This means that they only want to buy this note with
a value of $80,000. In this case, the seller may want
to take
back a second position note for $10,000 to
make up the difference.
So, here is how this transaction
will look:
Sale price of home = $100,000
Down payment from buyer = $10,000
Second position note of seller = $10,000
New note to be bought at closing = $80,000
Charter Financial now
has a new note for $80,000
that they can
purchase. Based on
the buyer's credit,
which is unknown in this
example, the following
suggested terms for the new note are:
Note value = $80,000
Interest rate = 10%
Term of note = 30 years with a 7 year balloon
Monthly payment = $702.06
Charter Financial can purchase the note for
$72,162.
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Here is the bottom line for the
home seller:
Home seller receives a lump sum of cash for
1) $72,162 less a commission earned by Beneficial
Brokers (for example, let's say $2,000)
2) Down payment of $10,000 collected from buyer
3) Second position note of $10,000 created by
seller
Home seller receives
*$80,162
at closing, a note
of $10,000 with interest, and the home is sold
quickly.
The home seller actually receives a total of
$90,162 plus
**interest
on the 2nd position note.
*($72,162
pay price from Charter Financial less
$2,000 commission for Beneficial Brokers) plus
$10,000 down payment from home buyer.
**The
home seller usually charges a higher
interest rate than the current market rate so that
a favorable return on his or her investment can
be achieved.