| Have you been trying to buy a house through | | | | of the loan. The buyer can request special |
| traditional means lately? Using a Realtor and | | | | conditions of the purchase, such as the inclusion of |
| mortgage broker to purchase a dream house | | | | household appliances. Also, the borrower does not |
| with a white picket fence isn't as easy as it used | | | | have to qualify with a loan underwriter. And, |
| to be. | | | | unless negotiated, there are no PMI insurance |
| How about selling you home? Finding a buyer who | | | | premiums. |
| can qualify for a loan is extremely difficult as well. | | | | The following would be an example of a typical |
| Who is the culprit most responsible for buyers not | | | | owner finance terms:o 5% owner finance feeo |
| being able to purchase property and sellers not | | | | Initial down payment of at least 10% of the sale |
| being able to transact? The bank! So if you could | | | | priceo Fully amortized term between 24 and 120 |
| eliminate the bank from this process, do you think | | | | monthso Interest rate of 8 to 20%. |
| you would be able to make a real estate | | | | The interest rates are higher than conventional |
| transaction? | | | | loans in order for the owner to counterbalance |
| A popular and easy to execute strategy that | | | | the risks - limited equity, a payer with low or no |
| offers a solution to both scenarios is known as | | | | credit score, possible foreclosure, or having to |
| Seller Financing. Seller financing is when the owner | | | | foot the bill for legal actions and selling the |
| takes a second note, or even finances the entire | | | | property via auction. But with the elimination of |
| purchase of the property in order to assist the | | | | PMI Insurance, the monthly costs end up about |
| seller in financing a real estate transaction. | | | | the same. As the buyer, you will need to make |
| Usually sellers will offer this option when a buyer | | | | the determination as to whether or not a higher |
| has difficulty qualifying for a conventional loan or | | | | monthly payment for 1-3 years is worth the |
| meeting the 20-30% required bank down | | | | ability to own your dream home. |
| payment. | | | | The benefits of seller financing the property for |
| Seller financing differs from a traditional loan | | | | the seller are as follows: |
| because the seller does not give the buyer cash | | | | 1) You receive payment 3 different times. As the |
| to complete the purchase, as does a lender. | | | | seller, you receive money when you sell the |
| Instead, it involves extending a credit against the | | | | property (in the form of the owner finance fee), |
| purchase price of the home while the buyer | | | | when you receive monthly payments (difference |
| executes a promissory note and trust deed in the | | | | between what you receive and what you owe), |
| seller's favor. | | | | and when you the mortgage balloons at the end |
| These special circumstances must be acceptable | | | | of your term (negotiable, but generally balloons |
| to the lender who makes the first mortgage on | | | | within 2-5 years). |
| the property. The necessary paperwork is | | | | 2) You are the BANK, not the landlord. All you do |
| prepared by the title or escrow company after | | | | is collect checks. You are no longer responsible for |
| the terms are worked out between the buyer | | | | repairs. Do people call Chase Bank when their |
| and seller. | | | | toilet clogs? No. And your buyer will not call you |
| Seller financing is advantageous to the buyer for | | | | for repairs. Again, they're the homeowner and |
| three main reasons. First, seller financing typically | | | | responsible for all maintenance and repairs. All you |
| has less closing costs than conventional financing. | | | | do now is collect money! |
| Conventional financing has closing fees up to 9% | | | | 3) Flexibility. You can determine whether or not a |
| of the deal. With seller financing, the fees are | | | | buyer qualifies instead of leaving it up to banks. If |
| generally less than conventional fees and usually | | | | their credit score, job history, and reserve |
| between than 5-7% of the deal. | | | | requirements are to your liking, then you make |
| Second, in addition to the closing fees being | | | | the decision as to whether or not to execute the |
| reduced, the down payment required is generally | | | | deal. |
| less. For banks, a 20-30% down payment is | | | | In summary, seller financing is an advantageous |
| required. For seller financing, that amount is | | | | strategy for both buyers and seller as under |
| negotiated, but generally is around 10-20%. | | | | current economic and banking conditions, many |
| Generally speaking, the higher down payment you | | | | buyers do not qualify for conventional loans and |
| invest in your property, the less risk in the eyes | | | | transactions are not being made. This strategy is |
| of the owner financing the property and the | | | | also attractive because the fees are lower and |
| better monthly payment plan you may negotiate. | | | | the requirements are more flexible and negotiable. |
| Finally, you have more flexibility on the terms. The | | | | Anytime you can take banks or underwriters out |
| parties can negotiate the interest rate and the | | | | of the equation, you can guarantee a much more |
| repayment schedule, as well as other conditions | | | | personal and expedient outcome. |