There are several types of financing, and not all types involve dealing with a corporate lender. Seller financing is a minority in the world of home financing. However, estimates show that it may make up as much as 10% of property sales. This type of financing can vary greatly and can offer advantages for both the buyer and the seller.
If there is one major problem, it would be that finding a seller willing to finance the sale of their home can be difficult. Sellers that are having trouble locating a buyer may be willing to consider seller financing. If offers have been made on the home, but the buyers do not meet standard financing requirements, the seller has the option to sell the home anyway.
About Seller Financing
Often referred to as a seller carry back, seller financing involves the agreement between the buyer and seller that monthly installment payments will be made until the time at which the home is paid off. The title will be transferred at closing. This will occur after the buyer has signed a promissory note that states the buyer agrees to make payments. A lien that favors the seller will be in place until the home is paid for.
It is not uncommon for a balloon payment to be required after a period of a few years. At this time this payment becomes due, the buyer may need to consider refinancing, or selling the home. Sellers who own their home free and clear of liens will be the best candidate for this form of financing, as the mortgage loan will not need to be paid at the time of sale.
Total seller financing is not the only option. It may be possible for the seller to finance only a portion of the purchase. The down payment, for example, could be financed by the seller. This would allow you to spend less upfront, and would reduce the amount that needs to be borrowed from the bank or private lender.
In order to be considered a candidate for seller financing, you will need to provide much of the same information that is needed to apply for traditional loans. You will likely be required to prove your income and work history, have at least a decent credit score, and provide references. It is advantageous to have these things prior to requesting that the seller offer any form of financing.
There may be different options available. Feel free to discuss any of the following with the seller:
- Interest rate that is lower than what banks are offering
- Reasonable monthly payments
- Possibility of buying down the mortgage rate
- Elimination of any prepayment penalty
- Balloon payment flexibility
The seller has the right to agree or not agree to any of these. The terms the seller is willing to agree to may depend on just how anxious they are to sell the home. Ultimately, it will be up to you to decide which elements are most important.
