Friday, May 8, 2015
Seller Financing Tutorial
Seller financing is the term used when the owner finances the purchase of his home for the buyer. In a seller financed home, the seller accepts the role of the traditional lender.
The seller can finance the entire mortgage if his personal economic situation allows for such a large loan. Or, he can lend the difference between the buyer's approved mortgage amount and the price of his home.
The buyer will repay the owner with monthly mortgage payments that include interest. Typically an owner financed mortgage is repaid in full within a period of a few years on the assumption that the buyer will be able to refinance the home with a traditional mortgage at that time.
But as with all other terms in real estate, everything is negotiable, including when and how to repay the loan.
Here are a few special clauses that are also subject to negotiation between a buyer and seller:
· “As Is” and Inspections
· Closing Date
· Recourse Against Buyer (or not!)
· Right to Assign
I usually like to include a phrase in promissory notes that I write to an owner on a seller-financed mortgage that:
"Maker of note has the right to purchase note should Beneficiary elect to sell note."
This basically gives me the right to negotiate a purchase, and potentially a discount, when the Beneficiary (original Seller) needs to cash out sooner.