Real Estate For Fun And Profit

Seller financing means that the seller will in effect be loaning you the money to buy the house, and you will make the payments directly to him. I think that this form of finance is used mostly when the buyer can’t get financed any other way, or if the buyer expects to get financing soon, but wants to lock up the house now rather than waiting for the financing arrangements to be made. It’s not bad or good or anything else, it’s just unusual. The seller can make money by collecting the interest as well as the principal, and the buyer can get a house when they can’t get financed any other way.

But if I was to go into a deal like this, I would be very sure of a couple of things:

first – does the seller have free and clear and unencumbered title to the property? Most mortgages issued in the last 40 years or so don’t allow the seller to do this if any mortgage exists. You need to be sure that the seller can do this, or you might lose the house because that first mortgage holder pulls the rug out from under the deal.

second – are the terms of the deal to your advantage, or at least fair and above board? The interest rate should be comparable to the market rate you would get if you went to a bank for financing. If not – why not just go to the bank?

third – be absolutely sure that the deal allows you to pay the mortgage off early, and with no penalty. If interest rates drop in a year, and you can get a commercial mortgage, you should do so, and pay this guy off in full. That will save you a lot of money over the long haul. But if he wants to charge you a penalty for early payment, you could be locked into the deal, or it would cost you extra to get out of it. That’s a bad arrangement, in my view.

fourth – I would see if you could get financed commercially first before going with seller financing. Commercial lenders have done this lots of times. They know the rules, the laws, and the record keeping required. The seller in your case may or may not know all of this, or follow it. If you don’t get tax statements from him at the end of the year, it might delay your tax returns, and cost you money.

Finally – any and all offers you write to this guy should be reviewed by a real estate pro – either a realtor, or a real estate attorney. If this is your first house, you need this assistance and guidance and assurance that you don’t get screwed in the process. This will cost you some money – but think of it as insurance, instead of an expense. You will want your offers to include clauses that let you out of the deal if you can’t get financed, if the deal doesn’t get the endorsement of the realtor/attorney, if the home inspection reveals flaws that you don’t like, for example. And the pro will guide you through what these clauses should say. If they don’t – you’ve got the wrong pro.

ok Diane the seller is carrying the note so it will not be recorded and you will not be considered a home owner unless it is recorded in the court house so no $8000 tax credit. Get all the proper inspections made so you do not get stuck with a head ache. Get a qualified building inspector and termite as well as an appraisal done. The appraisal will make sure you are not over paying on this home. Have the contract witnessed by a notary with their stamp attached and keep a copy in a safe place so the owner cannot just kick you out on a whim. Always pay by check on time so when you go for lender financing they will require a paper trail of timely payments. Get a proper loan as soon as possible and the reason for this is the fact that you are at the mercy of the owner as to whether or not they pay the actual note if any on time. See you may pay them perfect but what happens to you if they let the house go into foreclosure? YOU loose all. That is why it is very important to get a proper loan soon and I am stating 1 year 2 at the most
I am a mortgage banker in TN

It means you pay the seller the installments and payments on the loan, rather than getting a loan from a bank. It is more common with trailer homes than with hard built homes.

If they are smart they will check your credit. However, these typically have interest rates and payments that are higher than what you can get from a bank.

Otherwise, the loan can be structured much like you would get from a bank. You want the deed to go to you, with the seller filing a lien against the property for the unpaid loan. You want a contract with terms and conditions you understand and agree with.

Most of all – make sure you get title insurance so you know you are getting a clear title to this property and no other liens are against it. If you buy the house without clear title, you also take it with any back taxes and liens against it.

Protect yourself – go to a local credit union and a bank and ask them what your monthly payment would be for a 30 year loan for this house, and how much you would need for downpayment and closing costs. That will give you a way to compare the seller’s offer.

Seller financing means you don’t need to get a loan, you will make payments directly to the seller.

Usually there is an existing mortgage to a bank. Make sure you insist that your payment to the seller goes through an Escrow Company each month and that the Escrow company pays the bank mortgage payment each month, and then sends anything left over to the seller. That way the bank mortgage won’t get behind and you loose the house to the bank.

Also make sure there is a deed to you signed by the seller and held by the Escrow Company until you pay the house off. That way you know that you won’t have to find the seller in Tim Buc Tu in 20 yrs. or deal with his heirs if he dies before you pay off the contract.

And yes, the Escrow Company will do a credit check on you, and provide that information to the seller. He will then decide if he wants to proceed or not. Usually, seller financing people won’t be as particular as a bank about good credit scores.