The real estate market is in challenging state again. There is little
competition from other buyers because we’re in the “buyer’s market” now ,
meaning there are more listed homes for sale than there are active buyers.
So how a seller and even a home buyer could take advantage this type
of situation? With more than 50 percent of the homes owned in the U.S.,
seller financing is one of the real estate market that even most real
estate agents forget to offer.
Seller financing means the owner will carryback the mortgage for financing
the property which is free and clear (there is no more outstanding debt).
The owner will be the acting as the bank. The buyer who normally pays the
mortgage to the bank will be paying the owner instead.
Buyers used to have easy access of getting low interest rates mortgages.
Those glory days are gone. There are big numbers of home buyers who
are “cash-challenged” or even their credit are not so impressive either.
Seller financing could be a great solution for those types of buyers and
also a quick way for home seller to go for a quick sale.
Who are best sources for seller financing?
These are the folks who are mostly retired and would rather receive more
retirement income. You could ask your local real estate agent to search
the local multiple listing service (MLS) for homes listed with no existing
mortgage.
A great benefit for home seller using seller financing is they avail
themselves of a great income. They could start earning 7 percent or more
instead of parking the cash in a bank or mutual fund earning around 5 percent
interest.
Advantages of seller financing
– Above market interest rate
– Quick sale for the home seller
– Minimize the potential state of being a “motivated seller”
– Very safe investment. Even if the buyer defaulted and not make the mortgage
payment, the seller can foreclose and get paid off at the foreclosure sale by
the highest bidder and regain possession of the property to resell for
another profit.
– Tax benefit from installment-sale tax benefits. Consult your tax advisor
for more detail.
– For the buyer, you avoid paying for all the junk fees that are in the
thousand dollars that banks charge for every borrower.
How to convince the seller accept seller financing?
Not every seller with free and clear property out there would entertain seller
financing option. They be could hesitant to accept a seller financing due to
their lack of understanding and even some novice real estate agent who
represent the seller could also add to the matter.
When a seller is hesitant to carry back a mortgage, you could offer some options;
1- Prepay the first six to twelve months of mortgage payments upon closing
(this could ease the burden of paying large down payment).
2- Provide post-dated checks each month for the year so the seller can
deposit a check on the first day of each month. This is like another
security you provide for the seller.