The first time you heard about seller financing, it probably did not make sense. This is a type of loan wherein the seller lends the buyer the amount to purchase the property. Other terms for this are owner carry back and owner financing. If this has not been explained to you yet, it may be difficult to fathom. Why would the seller lend an amount if he needs the proceeds for the property?
This is a great help for the buyer. In several instances, borrowers do not get a 100% financing from the lenders. If they apply for a mortgage loan of $300,000, the lender will most likely approve only a portion of it. For instance, the lender approved $275,000. This would entail that the borrower still need to produce $25,000. He can ask his real estate agent to negotiate with the seller. If the seller agrees to carry back the remaining amount, seller financing takes place. The borrower then makes 2 payments, to the lender and to the seller.
In some cases, the buyer may not qualify for a loan. The seller may carry back the entire value of the property with the designated interest rate. Other terms of the financing and mode of payments should be pre-arranged as well. Once this is agreed, the seller may start collecting payment at an agreed time.
If the seller wishes to stop making the collection and wants to acquire the corresponding amount, he may do so by selling the note. There are banks and other financing firms that offer this kind of service. This is known as note buying. Once the arrangement is finalized, the buyer stops making payments to the seller and starts paying the bank or the financing firm, following the same terms they agreed upon.
The benefits of seller financing:
The seller can surely benefit from this. First, he has a monthly regular earning. In addition, many have avoided the capital gains tax because of this.
The parties involved can greatly save on closing cost as well. If they can agree among themselves, then there is no need for them to pay such cost. It is recommended that they have real estate lawyers though. This is to make sure that all legal procedures are taken and both parties are protected.
The parties can easily negotiate as well. If the buyer wants to have some of the appliances to be left at the property, he can easily air his desires. The seller can also lay out his preferred options for the mode of payment as well as the interest rate to be carried out. The parties can decide when to schedule the repayment and how long is it going to be.
You have to be careful though when engaging in this type of financing. If you are the seller, see to it that the buyer is able to pay because you might be in trouble in the end. The buyers on the other hand, should be careful as well. They have to know about the different limitations of the property they want to acquire.
If you opt for seller financing, hire a lawyer. This is to protect your interests and prevent fraud.
Consider
Real Estate for Sale in Greater Phoenix AZ and
Greater Phoenix AZ Realty for your next home.
