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Seller Financing for Homes
Seller financing for homes is a concept that most people aren’t aware of. It can be the answer to the problem of selling in a slow market with tight credit. More buyers will be attracted to the home with seller financing, so it may sell faster.
Each state has their own real estate laws, so the process of creating a promissory note and mortgage should be handled by a real estate attorney. Since this is a legal agreement, it will be recorded in the property assessor office.
There are several different options to sell a property, with thought given to terms, interest rate, and length of note and mortgage. Selling a property this way gives more flexibility for sellers and buyers. It also has its’ advantages and disadvantages to think about.
Consider the several types of seller financing for homes. Always get a good size down payment and use the home as collateral. A straight all-inclusive mortgage for the entire balance, a land contract, a lease option, or a second mortgage are several creative financial solutions for seller financing.
A straight all inclusive mortgage and note can be good since it will get the property sold faster. It works well when little or no mortgage is on the existing home. Also a higher asking price and interest rate, can be a realized. If the thought of receiving steady monthly payments is attractive, then it is a win-win. Once a promissory note and mortgage are established and there is some seasoning, the owner may sell off the note to an investor. Seasoning means that the buyer has made steady payments for a given time. This makes it more attractive to potential investors.
The disadvantage for this type of financing is a risk that the buyer doesn’t pay, then the seller will have to foreclose and take possession.
The land contract will create an equitable title, but the deed isn’t granted to the buyer until the last payment is made. It would be best to have a short term for this type of arrangement.
The lease-option is a short term arrangement allows the buyer to have some equity as long as he makes payment. The property is leased for a given time and a pre-determined amount is applied to the down payment. It can be very flexible in terms for both parties. If the buyer doesn’t make payments, then the owner will have to evict them and start the selling process over, again.
The most risky type of financing is agreeing to the second or junior mortgage on the property. The owner agrees to hold smaller mortgage for the balance, after the buyer’s lender holds a first on the home. If the buyer defaults, then it’s difficult to get paid after the first mortgage.
Getting a down payment and using the home as collateral is essential, in any case.
Seller financing for homes can be a great option for both parties but weigh the advantages and disadvantages carefully.
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