What is seller financing?
Seller financing can be a win win situation for both the seller and the buyer. We are still recovering from the real estate and credit disaster of 2008 and there are millions of homeowners who filed bankruptcy and lost their homes in foreclosure. Many who filed bankruptcy have a mandatory two year waiting period before they can qualify for a mortgage loan. For those who had a foreclosure have a minimum waiting period of 3 years from the date of the sheriff’s sale or the date when their names was transferred out of the deed of the home. For those who are waiting out the wait period can purchase a home via seller financing.
Advantages of Seller Financing
The advantage for the seller to offer short term seller financing is that the seller probably can get a higher price for his home and he can get a preapproval letter from the buyer that the buyer is preapproved for a mortgage on a near future date due to a prior bankruptcy or foreclosure. The seller would probably want a larger down payment like 5% to 10% or more of the purchase price and can charge a higher interest rate than the current market rate.
Seller is the lender in Seller Financing
With seller financing, the seller is the lender and takes on the role of the bank. The seller might have the house free and clear without a mortgage or might have a mortgage on the house. If the house is free and clear, the buyer of the home and the seller both sign a promissory note. The promissory note contains the terms of the purchase as well as the terms of the loans and its exit strategy. Most seller financing agreements are short term agreements and are balloon loans.
Seller’s mortgage company
If the seller still has a mortgage loan on the home, the seller’s current mortgage company must agree to the transaction. Most sellers do not notify their mortgage company and go ahead and draw up the agreement. We will be discussing the different types of seller agreements on later blogs.