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Calculating VTB Sale Profit Analysis

Most home sales in Canada take place the same way: an owner lists a property for sale and engages a realtor to complete the process. Potential buyers come and look at the house, and one of them eventually makes an offer that is to the seller’s liking. The buyer takes out a mortgage, and then a lender finances the purchase, and the seller receives a check in the amount of the agreed purchase price. Then, the seller pays off any remaining mortgage debt.

However, some people don’t want to go through a realtor because they want to save on the commission, so they list the house as “FSBO” — or “For Sale By Owner.” There’s an a better alternative to make additional money off the sale of your house, though — particularly if you have paid the house off and own it “free and clear” — financing the mortgage yourself, or financing a second mortgage to get the buyer where he needs to be to finance the larger mortgage through a bank or other lender.

Here’s how it works. Let’s say you’re selling your house for $500,000. A buyer is interested, but he only has $50,000 to put down – however, due to not meeting bank requirements due to credit or being self-employed he cannot qualify for the full mortgage. He has more than enough income to qualify for the loan, but the lender only qualifies him for 80% of the purchase; $400,000. There is a shortfall of $50,000. You, as the seller, can make some extra money by financing a second loan for him. The buyer gives you the $50,000 as a down payment, you obtain another $400,000 from his lender, and you provide him with a mortgage note for the $50,000 outstanding. This is referred to as a vendor take back mortgage. Your note is the second mortgage lien, which means that in case of default the bank gets paid first. You can work out the terms with the buyer as to the rate and terms of this vendor take back mortgage.

How much money can you make this way? Well, you are out of pocket that $50,000, but you will get it back with interest. The purpose of this calculator is to take you through the different home purchase scenarios so that you can decide whether it’s worth the hassle (and the associated legal costs and risks) of serving as that secondary lender. If this is something you’re interested in — and if the numbers work — we recommend working with a realtor that has a connection with Amansad Financial, as they are familiar with the paperwork and regulations involved with this blended loan. That way you can get the most out of your home sale, working with professionals who are experts in the process.

Try Our VTB Sale Profit Analysis Calculator – Use this calculator to analyze the potential profit between a typical real estate sale and a “Seller Financed Sale” from Amansad Financial Inc.

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Daniel K. Akowuah | Mortgage Professional / DLG Underwriter
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