Using Seller Financing to Sell Your Property
Seller or Owner Financing occurs when the
seller of the property agrees to receive monthly payments from the buyer in
place of the buyer obtaining a loan from a traditional lending institution. For
example, assume you sell your property for $50,000, and the buyer has $5,000 for
a down payment. 
Under
a traditional financing arrangement, the buyer would apply and qualify for a $45,000 mortgage
from a bank or mortgage company, paying the seller the balance of the sales price with the loan proceeds.
When seller financing is used in this example, the seller will “hold” the mortgage and receive monthly payments from the buyer. The repayment terms (interest rate, term or length of repayment) are negotiated between the buyer and seller. In the above example, assume the parties agree to a 9% interest rate with a 20-year repayment term (also known as the amortization term). These terms would require the buyer to make 240 monthly payments of $404.88 to the seller. Over the twenty-year loan period, the seller would receive $97,170.40 in principle and interest payments.
A seller-financed transaction may be closed using a variety of legal documentation. The most common forms of documentation are a Real Estate Contract, Note and Mortgage, or a Note and Deed of Trust/Trust Deed. The instrument you choose for your transaction is largely determined by what is customary in your area.
Why Use Seller Financing?
Selling a property for full list price to a bank-qualified buyer is every seller’s dream. However, there are numerous reasons why using seller financing is preferred or necessary in order to sell your property. Some of the most common reasons for seller financing are:
The property does not qualify for traditional financing. Land, Mobile Homes with Land, Residential Investment Property, Commercial Property, and Single Family Residences which are in rural locations, require extensive upgrading, or do not meet bank loan size requirements are a few examples.
The Seller would rather receive monthly income. In many cases, especially when retiring, the seller would rather receive the interest that would otherwise go to the bank. In the above example, the seller would receive $52,170.40 in interest payments (plus $45,000 principle) during the life of the mortgage.
Seller Financing provides a larger pool of potential buyers. Because the buyer can bypass the hassles of traditional bank financing, more buyers will be attracted to your property if seller financing is offered. In addition, banks traditionally are reluctant to lend money to individuals who are self employed, newly employed, or those who do not use traditional credit.
The real estate market in your area is stagnant. Has your property been on the market for months or years with few, if any offers? This is every seller’s nightmare, but it is a reality in many real estate markets today. If this is a problem you are facing, the last thing you want is to receive an offer, then have the bank decline the loan. You can save that offer with seller financing.
Use Seller Financing AND get Cash at
Closing
Freedom Financial is in the business of purchasing seller financed transactions simultaneous with the sale of the real estate. As a seller, this provides you with the opportunity to utilize the flexibility of seller financing and put money in your pocket at closing. In addition, we also purchased “seasoned” real estate contracts and notes. Contact us today to discuss your specific property and how seller financing can assist you in turning your property into cash.
Ten Tips to Remember when using Seller Financing
 | Down Payment— Whenever possible, require a down payment of 10% to 20% to reduce the risk of default. |
| Check Buyer’s Credit— Always require the buyer to complete a credit application and obtain a current copy of their credit report. Poor credit may require a larger down payment to protect your property. |
| Repayment Terms— All terms of a seller financed transaction are negotiable between the buyer and seller. The structure of the contract directly affects the cash value of your contract. Generally, the higher the interest rate, and the shorter the term, the greater the cash value of your contract. |
| Title Insurance— Any time you purchase or sell real estate, you should obtain title insurance. This will identify any items recorded against your property that could affect your lien priority. |
| Due on Sale Clause— This ensures that you will be paid in full if your property is resold. In lieu of a due on sale clause, require that any assumption of the buyer’s interest is subject to your written consent. |
| Taxes and Insurance—Review the contract to ensure it contains a clause requiring the buyer to maintain adequate insurance on the property. In addition, the contract should specify the buyer’s responsibility to pay real estate taxes after closing. |
| Mobile Home Title—If the property you sold includes a mobile home, contact the local Department of Motor Vehicles to ensure you have the proper documentation to transfer the mobile home title. |
| Closing Agent— Always use a licensed third party to close your transaction. This will ensure your transaction is closed properly. |
| Payment Collection Agent—It is recommended you employ a licensed escrow company to manage your real estate contract. They will perform numerous functions in a professional manner, including calculating the principle and interest for each payment, sending out monthly and annual statements, reserves for taxes and insurance, IRS reporting, and document safekeeping. |
| Contact Freedom Financial— Remember,
Freedom Financial is your seller-financing expert. Contact Us today! |
