Breakdown of Seller Financing ?

[Madylen Barberan]

Hello, 

In my search to buy my first investment property I have come across a home that is for sale by owner and advertising seller financing. I am a bit unsure on how seller financing typically works...any insight would be very helpful. Thank you!

[Randall Alan]

Quote from @Madylen Barberan:

Hello, 

In my search to buy my first investment property I have come across a home that is for sale by owner and advertising seller financing. I am a bit unsure on how seller financing typically works...any insight would be very helpful. Thank you!

@Madylen Barberan

Hi Madylen,

 Seller financing is really little different than financing from a bank in its most basic sense.  The seller is your bank.  The difference is that you will negotiate the terms of the loan with the seller (interest rate, down payment, length of the loan, etc are all pretty much negotiable to whatever degree the seller is willing to accept.  The seller might only want to carry the note for X number of years... so it becomes a balloon note where after say 5 or 10 years, he wants to be paid off in full.  At that time you would go and refinance the mortgage with a regular lender usually.

I would highly encourage you to work with a real estate attorney when dealing with an individual seller.  You don't know that other person well -  most likely.  They, likewise, may not know seller financing any better than you... they may just be a landlord that wants to spread out their payments, but have little experience on how that happens.  Or maybe they do know what they are doing... regardless... when everything is negotiable, you may not know what is not in your best interest if you are a beginner, and once you sign, you are locked in.  To that end, you want someone reputable on your side - and definitely not "his guy" who wrote the contract... you want another set of independent eyes who is only representing you.  

For instance, in true seller financing, the property should be transferred to your name with your local county... not kept in the name of the seller.  You also need reporting for tax purposes for interest, etc... so those things have to be generated.  Make sure you don't fall into the trap where you are just renting to buy (with a big down payment) when you thought it was true seller financing.   

Hope it helps!

Randy