SELLER FINANCING – NO QUAL PROPERTIES
In today’s Real Estate market, many homeowners are having a very difficult time getting approved for new bank financing. Interest rates are at historical lows but traditionally good buyers are having a hard time qualifying under today’s tougher lending guidelines.
Fortunately there are other opportunities available to today’s home buyer. Because of the difficulty that those buyers are having getting approved for a loan, many sellers now realize that If they want there home to sell they will have to help with some type of seller financing. Over the past few years literally thousands of people have lost their home through foreclosure or a short sale. Many of those people owed more on their mortgage than the home was worth and then just walked away. One of the reasons that they did walk away was that many felt they could not foresee that the value of their home would ever increase to the amount that they owed on their mortgage.
Seller financing is a great avenue for buyers who have difficulty qualifying for a traditional mortgage. Sellers also reap benefits if they are flexible in the way they offer their home to potential buyers. They can reach a much larger market, their home will usually sell quicker and in many cases get a higher price.
Through seller financed homes buyers can purchase homes at today’s current market value and at a reasonable interest rate. Instead of a buyer renting a home for 2 to 5 years while they work on repairing their credit, seller financing allows buyers to purchase a home today and then build equity for their future while repairing their damaged credit caused by a foreclosure, short sale or job loss.
In seller financing, the seller will take on the task of the lender. He will provide the buyer with the financing necessary to purchase the home. Instead of giving cash to the buyer, the seller extends enough credit for the purchase of the home less any down payment from the buyer. A promissory note is then signed by both the buyer and the seller, they record a mortgage and the buyer pays back the loan over time with the interest stipulated in the contract.
Seller financed loans are usually for a short period of time – the loans are amortized over a 30 year period but are due in 3 to 7 years. During that time the buyer has 1) had enough time to repair their credit, 2) the property has appreciated somewhat and 3) their financial situation will have improved enough to allow a refinance on the property through a traditional lender.
There are a number of ways that a seller can offer financing to a prospective buyer. Following is a quick look at a few of those options.
ALL-INCLUSIVE MORTGAGE – In this type of mortgage, also called an AITD, the seller carries the note and mortgage for the entire purchase price of the home less any down payment paid by the buyer.
JUNIOR MORTGAGE – In today’s market, other than some government backed loans, lenders are reluctant to offer a mortgage greater than 80% of the home’s value. Sellers can sometimes extend credit to the buyer to make up the difference. This is called a second or junior mortgage.
LAND CONTRACT – With the use of a land contract, title does not pass to the buyer, the buyer is given "equitable title," a temporary shared ownership with the seller. The buyer makes payments to the seller and after the final payment is made, the buyer receives title to the property.
LEASE PURCHASE – The seller gives the buyer equitable title and leases the property to the buyer for a contracted lease term. When the contract is fulfilled, the buyer title to the property and obtains a loan to pay the seller. In some cases the seller will credit the buyer with some portion of the rental paid.
Seller financing is a extremely effective tool in a tight credit market. It allows sellers to sell a home faster and in many cases at a slightly higher price. Buyers will also benefit in that they are able to purchase a home at current prices, build equity, repair their credit and move on with their lives.
If you are looking to purchase a home but have been turned down by traditional lenders, give us a call, we may have an option for you to purchase that new home.
