Wednesday, April 1, 2015

Seller Financing Q&A

Q: What is seller financing?
A: It is pretty much like bank financing except you are making your mortgage payments to the seller of the house instead of to a bank or money lender.

Q: Why should I be interested in seller financing instead of a conventional mortgage?
A: Seller financing has distinct advantages for both buyer and seller, a win-win situation for both parties.

Q: What are those advantages?
A: For the Buyer:
  • It is less expensive and easier to qualify, saving thousands of dollars over the life of the loan
  • There are no loan origination fees (typically 1% of the loan amount)
  • There are no loan discount fees
  • There are no loan interest rate lock-in fees
  • There is no PMI (mortagage payment insurance for the bank)
  • The seller doesn't care where or if you borrow some of the down payment
  • There is no required appraisal fee
  • There are no required inspection or certification fees
  • The seller typically does not want to misrepresent the property, and have you, the buyer, stop making payments or sue the seller, whereas the bank doesn't care if you have a problem with the house.
  • There are no miscellaneous fees for things like document preparation, tax registration, courier fees or other "junk" fees for you to pay.
  • Loan qualification is decided by the Seller who is motivated to sell his house, not a bank corporate committee with no personal interest in your qualification
  • Loan docuentation is minimal - no tax retruns, no letters to write about why you were late on a payment seven years ago, no disclosing all your personal information
  • Closing and possession can be in as quick as a week
  • The only real concern is whether the buyer has the income to support the monthly payments and is reasonably credit-worthy
For the Seller:
  • The Seller gets the interest on the loan balance, instead of the bank. Savings account interest is pitiful these days and the stock market is too volatile for senior citizens to feel secure
  • Closing and possession can be in as little as one week
  • There are tax advantages to spreading the income stream over a period of years
  • The Seller may be able to defer some or all capital gains taxes
  • The Seller may retain eligibility for Medicaid without having to put up the cash otherwise due for medical costs, if it were received in a lump sum 
Happy Investing!

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