Can anyone speak on Seller Financing?

Question

I have recently stumble across seller financing and it seems to me that it may be exactly what I was looking for. I am not able to get a conventional loan, (just graduate college, so poor work history) but this seems like an option I could pursue now instead of having to wait a year or two to build a credible work history. Am I on the right path? I am still in the research phase but don't want to get stuck there for too long and would like to hear what other people have to say about this type of creative financing.

Peter M. · Answer

@Christina Jean-Francois Prepayment penalty is simply an extra fee if you make extra payments or pay off the loan early. When an investor makes a loan (in this case a loan to you) they expect a certain return for a number of years. By paying it off early they will not get that return for as long as they wanted and possibly owe more taxes so they write in a prepayment penalty. Most conventional mortgages don't have them but they are more common in commercial or private loans which is what seller financing is.

Tony Guarino · Answer

@Christina Jean-Francois Congrats on graduating! I don't have any experience with seller financing, but you might be able to get an FHA loan....

I don't know the exact rules, but if you get a job soon after graduating, you only need to be employed for 3 months to qualify. (This is how I bought my first duplex) Plus you only need 3.5% down. The only downside to FHA is that you have Mortgage insurance for the life of the loan, or until you refinance.

Good Luck!

David M Trapani · Answer

Excellent option. Have your agent scout out "free & clear" properties in your target market. Start writing offers. Avoid pre-pay penalties. Buy & hold or advance when ready by hypothecating ("walking the note") to acquire new and different properties. Amazing opportunities and doors will open. Highly recommend as another tool along with conventional finance, all-cash purchases, lease with option to buy, etc.

Dan Maciejewski · Answer

If you can convince a seller to hold a note, an option is to have a seller-financed note for 3-7 years, interest-only, with a 30 year amortization.  Sometimes you can get one with no pre-payment penalty.  The balance will be due at the end of the interest-only period, which means you'll need cash or another loan.  This is still good as long as it doesn't negatively amortize.

You will have small payments, the seller will have cash flow, and you have time to qualify for a conventional loan to refinance out.

Many people will tell you that sellers don't want to finance.  I just found 27 opportunities on my MLS in my county, priced from 70k to 4.8 million.  Obviously they will have their own terms they want and they will want to underwrite you, but it's an option.

Christina Jean-Francois · Answer

My credit history is young but I have made sure to keep a high score so hopefully, that would help when it comes time to talk to sellers. @Colleen F.

Thank you @Tony Guarino. Now that is something that I did not know. I will seriously look into that. Does the quality of the job matter? While I could pursue my career full time, I wouldn't want to go through the hassle that comes with looking for a new job just for a few months. I am looking to get my agent's license but I'm not sure they will consider that.

@Peter M. Can you elaborate on what is a pre-payment penalty? I haven't come across that term on the research I've done so far

Peter M. · Answer

@Christina Jean-Francois seller financing can be a great option for people who don't qualify for "normal" loans. The terms are usually higher interest but lower down payment. After 2008 there are a lot more rules the seller has to comply with to do seller financing. Try to get one without a prepayment penalty so you can refinance to a better interest rate once you qualify.

Colleen F. · Answer

@Christina Jean-Francois the seller still needs to decide to finance you so your credit history may be considered relevant. you also have to find someone with whom you can agree on terms for a property you want to buy so alot of moving parts but still a good option.

Can anyone speak on Seller Financing?

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