Seller financingis a mortgage provided by the seller of a property to the purchaser.Ideally, the buyer makes a significant down payment to the seller, and then monthly makes installment payments over a specified time, at an agreed-upon interest rate, until the loan is fully repaid.Often, there is a balloon payment due within five to seven years requiring the buyer to pay off the financing in full by that date.
In layman's terms, it is when the seller who owns a property 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 repaid partly from the buyers down payment and partly from the buyer’s monthly payment to the seller.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. If the buyer defaults the property is repossessed or foreclosed on exactly as it would be by a bank.The seller keeps the buyers down payment that was provided and can sell the property to another seller financing buyer or sell traditionally and take their profits.
Are there enough buyers who need seller financing?
According to a recent article by Fortune.com the average American can't qualify for a mortgage.With tight lending guidelines since the real estate market collapse a decade ago many would-be buyers are forced to rent.
Over 25% of Americans have a credit score below 640 which is the minimum needed to qualify for a conventional loan.
In addition, self-employed borrowers find it very difficult to qualify for conventional bank financing.These can make very good borrowers since their cash flow is typically much greater than traditional employees.
Can anybody sell with seller financing?
If you own your home free and clear (with no mortgage) you can sell your home with seller financing.You are lending your equity in the property to the buyer.If the buyer doesn't pay you get your home, and all your equity, back.
If you have a mortgage on the property you can still sell your home with seller financing provided you owe less on the home than what you are selling the home for.
Risks associated with seller financing
The main risk, of course, is the buyer you sell to doesn't make the monthly payment to you.If you have a mortgage on the property you will need to make your monthly mortgage payments until you have foreclosed and get legal ownership back in your name.Our company can help with this process.
If you like the idea of seller financing but can't get past the idea of the buyer not making timely payments and “sticking”, you with having to pay the underlying mortgage we may want to consider our Partnership Program.We will partner with you on the sale of your homeland we will provide guaranteed payments on your underlying mortgage.
The likelihood of buyer default
The good news is it is unlikely the buyer will default on their payments.Over the past 10 years our buyer default rate has been less than 3%.That means 97% of buyers we have purchased properties with our seller financing program have paid the seller as agreed.