Seller Financed Home Lending: A Flexible Solution

A Wave Of Accumulating Debt Can Threaten Foreclosure

What Is Seller-Financed Mortgage Lending?

Seller Finance home lending is when the homeowner lends money to the buyer to purchase the home. This process is called a seller-financed mortgage. It can be particularly helpful should the seller face a wave of debt that could threaten the seller with losing their home to foreclosure.

Owner financing is another name for seller financing. The big difference is that the seller acts as the financial institution, issues the loan to the borrower, and manages the mortgage process. Instead of applying for a conventional bank mortgage, the buyer signs a mortgage with the home seller.

If the buyer gets behind on their loan, unlike traditional mortgages from institutional banks, the seller does not need to commence foreclosure proceedings against the borrower immediately. Everything is negotiable, including extending the loan and lowering the payments for the borrower.

Alternatives To Bank Home Loans

Sellers who want to obtain their desired home price and close the deal quickly should consider seller financing. Especially if the seller is facing a potential wave of debt.

Seller financing can be a powerful tool to remedy real estate sales that otherwise would never get done. Seller financing can be a good option for sellers who want to sell but only need to receive part of the purchase amount in one lump sum to cover immediate debts.

Benefits To Seller-Financed Lending

Flexibility Between Buyer And Seller

The parties can negotiate interest rates, down payment, and the payment-to-loan ratio between principal and interest or have a lump-sum payment at the end of the lease term.

A seller who has offered buyer-seller financing must be willing to take the risk of default. Still, the upside for the seller is that title remains with the seller until all the payments are faithfully made – including the big balloon payment at the end.

With seller financing, the buyer can enjoy a smaller monthly payment and down payment and obtain approval status at the seller’s discretion rather than a slow-to-lend bank.

Everything Is Negotiable

A significant advantage of seller financing is that the terms of the deal are negotiable. This fact can benefit both parties.

Favorable Rates

With seller financing, you can offer favorable rates to buyers. For the seller, this means getting a much higher price for the home. For many buyers, it’s an excellent way to make a deal happen if the money isn’t there now but will be there in the future. This situation is often the case with young professionals like doctors and lawyers, who are still paying off student loans and are cash poor but will reach higher income levels in three-to-five years.

Loan Terms Can Vary

Sellers who finance homes usually ask for a five to eight-year payment period, often concluding with a balloon payment at the end of the term. The balloon payment is generally made through traditional financing by the buyer.

Much Quicker Transaction

Once a seller has sold the property through seller financing, the seller can turn around and sell the secured note to a note buyer for a lump-sum payment.

By locating someone willing to buy the note and the stream of payments that come with it, the seller will have ready cash for a down payment for possibly another home. This strategy will likely depend on whether you are in a rising or falling housing market.

Be Prepared For the 2023-2024 Housing Market

Uncertainty In Short-Term Economic Conditions

With the 2023 housing market and interest rates being so uncertain, it makes good sense to be prepared for a considering non-conventional approach to borrowing money, such as seller-financed lending.

Using this type of creative financing, the seller could get more than the original asking price – without resorting to the questionable strategy of patiently waiting for the right buyer, which may or may not exist in today’s market.

This is especially true when the seller needs cash now for debt that has been accumulating and has become a threat to the seller’s short or long-term financial security.

Short-Term Seller-Financed Advantages To Keep In Mind

• Expect a much faster closing, and there is no need to wait for appraisals, committee decisions, and financial approvals.
• There is no institutional credit process to qualify purchasers.
• There is no need to upgrade the property to qualify.
• You can often obtain a much better rate of return on your money. Typical rates on real estate instruments are usually much higher than those of bank savings accounts or CDs.
• Large-sum down payments are not required and, therefore, easier to sell.
• Terms can be easily customized to meet the buyer and seller’s needs.
• There may be some valuable tax considerations. Please consult your CPA or tax advisor for details.
• Your deal is a negotiable instrument, so you can get a return on your money now and sell it later for cash or borrow against it should you elect later.
• In today’s market, you will likely obtain a much higher value because the purchaser does not need to qualify for a standard mortgage, pay points, appraisal fees, loan fees, and expensive inspection charges. The net of this is that you can often sell a private instrument and obtain a higher cash price in today’s unstable market.