Seller financing is just what it sounds like, the seller takes out a loan to enabling the buyer to purchase the property. The process involves the buyer and the seller executing a promissory note, which specifies the interest rates, payment schedule and the consequences of default. Essentially the buyer pays the mortgage directly to the seller. This process takes banks out of the equation and can help potential buyers who wouldn’t otherwise qualify for a traditional mortgage.
Sellers potentially could sell the property faster by offering financing up front. This can save them the time of waiting for the right buyer to come along and purchase the property. Because the terms of the mortgage are arranged directly between the buyer and seller, there is no need to wait for bank approval. The removal of banks from the equation reduces closing costs as there is no need to pay bank fees or wait for an appraisal. The terms of the down payment are arranged between the buyer and the seller, potentially meaning less money is needed up-front. Seller financing therefore could be an ideal arrangement for new real estate investors without a good credit profile or an established track record.
Seller financing is uncommon because so many people are unfamiliar with it. Sellers themselves are often uncomfortable with this arrangement. Because of this, seller financing is usually only offered in markets where traditional mortgages are hard to come by. In strong markets buyers seeking seller financing may seem untrustworthy. But if you are a buyer and if seller financing isn’t offered directly, you can always ask for it. Ensure the seller understands the financial benefits in clear terms and ensure they are comfortable with the process. Sellers may see a drawback because they don’t get the full asking price up front. If this is the case you can explain that they can sell the promissory note to other investors, which means they will get the full asking price immediately.
Both parties may have a shared interest in avoiding the traditional mortgage process. But you will still want to convince the seller that you are trustworthy. If you want to initiate seller-financing, you may need to explain why you couldn’t qualify for a traditional mortgage. However essentially the terms of seller-financing will largely depend on your ability to establish a good relationship with the seller. Of course always consult with qualified experts throughout the process. Don’t use templates found online in order to make any agreement. Have a lawyer draft the arrangement in clear terms so that both you and the seller are protected.
The advantage of having a potentially lower down payment makes seller financing an ideal arrangement for those seeking to purchase commercial property for the first time. Seller-financing also saves you the expense and hassle of applying for a mortgage from a traditional bank. However if a seller isn’t offering financing up-front, it is vital that you to a good relationship with them before pursuing this arrangement.
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.