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Can I Use Seller Financing?

April 21, 2012 | Comments: 0 | Views: 94

Seller financing is also called owner financing. It is a loan provided by the seller of the property. Some of the most common types of seller financing are All-inclusive mortgage, Junior mortgage, Land contract, Lease option, and Assumable mortgage. They are usually short-term loans. The amortization of the loan could be 30 years with a balloon payment in five years. The reason is that when the value of the property has appreciated or the buyer's financial situation has improved; the buyer will often sell the property or refinance with a traditional loan. It could be extremely beneficial if one can use it wisely.

The pros of Seller financing

With Seller financing, the seller can make profits in two different ways: sell the property and profit from the land appreciation; collect the interest and profit from providing funding. When borrowing money from the banks or mortgage companies, the buyer has to meet certain criteria such as the minimum amount of down payment, good credit record and sustainable income. Seller financing usually enables the buyer to make a low or no down payment to purchase the property. There is no strict credit record and verifiable income requirement. The seller can cover the risk of a low down payment purchases with a much higher interest rate.

Another major benefit of seller financing is the saving of the closing costs for both the buyer and the seller. The parties can negotiate the interest rate and repayment schedule; they can agree to a deal that benefits both parties the most.

The cons of Seller financing

So, you want to buy or sell a property with seller financing. Do you know what the disadvantages are?

As you make the deal with the buyer or seller on your own, there is always less protection for your property of your investment returns. As a buyer, there is no longer a home inspection, mortgage insurance, or an appraisal to back you up. For example, you could pay the loan in full but still not receive the title of the property because of the default of a senior financing. The property thus will be subjected to foreclosure. Furthermore, as a seller, you may need to face high credit risk because it is very difficult to get a whole picture of the buyer's financial situation. You might have to foreclose the property in a relatively unattractive price if the buyer defaults.

What to do?

Talk to friends who have experience in seller financing and get to know the whole process. Do your own due diligence, check the prevalent market rates in your region and come up a rate for your deal; Consult with legal counsel and your accountant regarding the potential consequences of any real estate fraud. Negotiate with the buyer or seller to get a better financing deal.

Learn more about real estate investment, visit:

Source: EzineArticles
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