Can You Make Seller Financing Work For You?

If you were to take the time to research the facts about homes sales, you would discover 10% of sales involve some aspect of seller financing. The major benefit to a homebuyer is the ability to negotiate flexible terms. Unfortunately not all sellers are open to this type of arrangement so you’ll need to interview many sellers before finding the right one. The best sellers are ones facing a large capital gains tax, have trouble locating the right buyer, open to receiving payments over time with interest, or amenable to increasing the sales price to assist with financing.

In the real estate industry, when a seller is willing to sell you a home in installments, it’s called seller carry back. Upon closing of your sales transaction, the seller will transfer title of the home to you in exchange for a promissory note stipulating your obligation to a mortgage payable in monthly payments. The notes will also provide for a lien on the property in favor of the seller until you pay off the loan. It’s not uncommon for seller financed deals to include a balloon payment after a few years. Once this happens, you’ll want to consider refinancing the loan or selling the property. Sellers who own the property without any liens and encumbrances are perfect candidates for this type of financing as they won’t need to pay off the mortgage loan upon the sale.

In circumstances where your combined down payment and mortgage loan isn’t enough to reach the sales price, you can use seller financing to cover the difference needed to qualify. This alternative can also save you money since interest rates will be lower than conventional secondary financing.

Before you get too involved in negotiating with a seller, you need to gather comprehensive documentation to validate your job, wages, credit history, and personal references. The great thing about seller financing is the unlimited flexibility to negotiate a mutually agreeable financial arrangement. Here are several alternatives you might want to explore:

1) Lower interest rate

2) Small initial payments

3) Buying down the mortgage rate

4) Elimination of the pre-payment penalty

5) Postponing the balloon payment for five years or the right to extend the home loan if circumstances make it difficult to qualify for refinancing or if you’re unable to pay the balloon payment in its entirety.

6) The option to have a qualified homebuyer take over the second mortgage if you decide to move out of the property.

Be selective in the terms you want to negotiate, otherwise the seller will refuse to cooperate with you. Don’t budge on those terms which are vitally important to you but be negotiable on other less important terms.

Are you searching for the best deal on Redondo Beach homes for sale? Come and see competent Redondo Beach Realtors who can help you find your dream home.