What is Seller Financing?

What is Seller Financing?

If you have been in the market for a new home, you may have run across this real estate term before. Seller financing is when a seller helps to finance a real estate transaction by taking back a second note or in some cases financing the entire purchase if the seller owns the home free and clear.  Seller financing is quite different from a traditional loan because the seller does not give the buyer cash to complete the purchase. Instead, it involves extending a credit against the purchase price of the home while the buyer executes a promissory note and trust deed in the seller's favor. These special circumstances must be acceptable to the lender who makes the first mortgage on the property. The necessary paperwork is prepared by the title or escrow company after the terms are worked out between the buyer and seller.

Who is a qualified buyer?

If you are considering seller financing for a home you are planning to sell, it is very important to thoroughly evaluate the creditworthiness of the potential buyer. Seller financing can bring a higher price to the sellers bottom line which makes able sellers interested in seller financing.

How is the interest rate determined?

The interest rates for an owner-carried loan are negotiable. To find out what the current interest rates are, ask your Real Estate Agent.

What are the benefits of seller financing?

Seller financing offers tax breaks for sellers and alternative financing for buyers who can’t otherwise qualify for conventional loans. You should run a full credit check on the borrower, require hazard insurance on the property, and include a due-on-sale clause. If you are a seller looking to seller finance, the risks you face are the same as any lender. Be sure to contact a Realtor who is familiar with the process and can guide you through the process. Call me today and I can help!

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