Learn All About Seller Financing Here!

signing_papers for new homeThinking about getting into seller financing but not sure what it entails? Checkout this article we found that we’re sure will help you make an informed decision about what’s best for you and your situation.

From the article:

Seller financing is a loan provided by the seller of a property or business to the purchaser. Usually, the purchaser will make some sort of down payment to the seller, and then make installment payments (usually on a monthly basis) over a specified time, at an agreed-upon interest rate, until the loan is fully repaid. In layman’s terms, this is when the seller in a transaction offers the buyer a loan rather than the buyer obtaining one from a bank. To a seller this is an investment in which the return is guaranteed only by the buyer’s credit-worthiness or ability and motivation to pay the mortgage. For a buyer it is often beneficial because he/she may not be able to obtain a loan from a bank. In general the loan is secured by the property being sold. In the event that the buyer defaults, the property is repossessed or foreclosed on exactly as it would be by a bank.

There are no universal requirements mandated for seller financing. In order to protect both the buyer’s and seller’s interests, a legally binding purchase agreement should be drawn up with the assistance of an attorney and then signed by both parties.

Benefits
Seller/buyer benefits:

  • Both the buyer and the seller can make substantial savings in closing costs.
  • They can negotiate interest rate, repayment schedule, and other conditions of the loan.
  • The buyer can request special conditions for the purchase, such as inclusion of household appliances.
  • The borrower does not have to qualify with a loan underwriter.
  • There are no PMI insurance premiums unless negotiated.
  • The seller can receive a higher yield on his/her investment by receiving equity with interest.
  • The seller could negotiate a higher interest rate.
  • The seller could negotiate a higher selling price.
  • The property could be sold “as is” so there will be no need for repairs.
  • The seller could choose which security documents (mortgage, deed of trust, land sales document, etc.) to best secure his/her interest until the loan is paid.

Drawbacks

  • The buyer could pay the loan in full but still not receive title due to other encumbrances not divulged by, or unknown to the seller.
  • The buyer could make payments faithfully, but the seller might not make payments on any senior financing that may be in place, thus subjecting the property to foreclosure.
  • The buyer might not have the protection of a home inspection, mortgage insurance, or an appraisal to ensure that he/she is not paying too much for the property.
  • The seller might not get the buyer’s full credit or employment picture, which could make foreclosure more likely.
  • Depending upon the security instrument that was used, foreclosure could take up to a year.
  • The seller could agree to a small down payment from the buyer to assist in the sale, only to have the buyer abandon the property because of the minimal investment that was at stake.

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SIDENOTE: Did you know that when you get your money is important? Checkout this article about the time value of money that could be of interest to you.
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Read the entire article here: http://en.wikipedia.org/wiki/Seller_financing

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About Capital Connections

Christian Downward is a note investor serving the Washington, DC and Sterling, Virginia areas.

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