Seller Financing???

Question

Hi! I ran across a property that is offering seller financing. I have heard this term a lot here on BP, however I'm not sure how I can and would benefit from such an offer. Apparently you have to qualify for it. I don't have liquid funds available and my credit is not exactly the best, a little less then good actually. If I were to consider an offer on a duplex how can I build my portfolio with this offer? Thanks

Robert Leonard · Answer

Welcome to BP @Veronica Roye! PROS Seller financing can offer several benefits when you deal with someone offering good terms. You save on closing costs, because you don't have the normal appraisal, origination fees, points etc. If you had a high debt to income ratio, this seller financing will not appear on your credit file. With the qualification requirement, you still have to qualify for the financing (thanks to Qualified Mortgage (QM) rules in the new Dodd-Frank regulations that just went into effect in January) you shouldn't be set up for failure. Why would an investor (seller) offer financing? It allows the seller to make a better return on their money by charging you 8-10% rate of interest than they would make if they sold the property to someone who paid cash or obtained bank financing. They would then have to take their money and figure out where to invest it to get that kind of rate of return. CONS Without an appraisal, you better know what you are buying, because sometimes, sellers will owner finance to get more for the property than the bank would finance to an outright buyer. Don't buy any "anticipated appreciation" BS. Appreciation happens, but it's never guaranteed, so you shouldn't pay for it. In your case, you lose the good payments that would have gone on your credit history if you financed through a traditional lender instead. Some of the savings on closing costs will be negated by the new qualification requirements - I haven't seen pricing on this service yet. The qualification has to be performed by a RMLO (registered mortgage loan officer) to be a qualified mortgage and keep the seller out of court in the event of default. Beware of the nefarious seller who doesn't intend to sell, but they are on the no maintenance real estate investor con game. They will buy properties and never touch them. They want to get a good down payment, and you do any maintenance, you pay for any repairs needed, you pay the taxes and insurance. Then they get as many payments from you as they can get and at the first glitch in the arrangement, you are considered in default and you get the boot. Under any other financing arrangement, you might take a hit on your credit report or have to sell the property that you have some equity in, to fix your situation, but that's not an option when they use strategies that are faster than foreclosure to take the property back. Then they do it again to the next sucker! This WAS used on owner occupant buyers, and while the QM rules protect owner occupants, they do not apply to financing to investors! So it's just a matter of time before those who want to be investors start getting targeted by those characters. In summary, seller financing can be a good thing, but the devil is in the details!

Account Closed · Answer

Seller financing is the best and easiest way to buy property. Why would you want to go to a bank and beg them to loan you money to buy a property when the seller will lend you the money. You just give the seller the down payment that he is happy with and start making payments to the seller. The seller doesn't need your SS number or your birthday or your job history. If he likes you, he will hold the mortgage for you. What could be simpler? Read this article. http://ronclimer.blogspot.com/2013/04/seven-reasons-why-i-love-owner-financing.html Also read my article right here on BP about owner finance. There is a link to it in the above article. Both these concepts are necessary to understand about owner finance. It is the best way to buy. If your credit is not so hot, it may be the only way to buy. Ask the seller to explain it to you.

Juan Bustos · Answer

my understanding of seller finance is seller becomes the bank you and seller work out down payment and interest

James Wise · Answer

@Veronica Roye a PMM title transfers to you just like a normal sale and seller acts as the bank would with a mortgage. a land contract. Title does not transfer until you have paid the note off. This option can leave you open to risk such as the seller taking out a line on the property without your knowledge.

Dwayne Hubbard · Answer

Be aware that usually when someone is offering seller financing,the rate and terms can be higher than you getting financed thru a bank or another lender.So on that note weigh your options,and make sure your comfortable with the rate and terms

Account Closed · Answer

Amazing. Can you imagine if lenders could evict borrowers with 20% or less equity and 5 years or less of possession?

Brian Gibbons · Answer

Hi James, OH is a unique state for Land Contracts (Installment Sales). Heres the unique rule in the OH property code: If the Vendee (buyer) has less than 20% equity in the contract including down payment and all payments, and less than 5 years possession, tand the vendee defaults on payments, the vendor (owner) can EVICT the vendee, no foreclosure. Its in the code. Isnt that amazing?

Account Closed · Answer

Offering seller financing, especially when it's offered in advertising doesn't make it a good deal. Lots of sellers want more than the bank. They want 30-50% down and will qualify you just like a lender. Sometimes they are trying to sell something for more than it will appraise for, sometimes they own something that doesn't qualify for conventional financing. There are plenty of smart and experienced investors selling for top dollar who are willing to take a huge down and make interest on the note. Check out the terms of the financing (down payment, interest rate and payments, how many months/years) and see if it will work for your purposes.

Brian Gibbons · Answer

Hi Veronica, Are you buying for you to live in (OO) or investment (NOO)? Seller Financing has more risk for the seller, so think: How can I show good character and the ability to repay? What does my FICO look like now? What an I doing to increase FICO? Write a few paragraphs here about: "I am a good risk to you Mr Seller because..." Consider going to a RMLO (mortgage broker designation( in NY and getting pre qualified as to income and debt (43% is the number). PM me if I can help, if you are SINCERE on owning property.

Paul B. · Answer

Hi @Veronica Roye , If it was me, I would talk to the seller in-person and find out why they are selling and get to know them. You may be able to work out something advantageous to both parties. If I was the seller, I probably would want you to "qualify" in my eyes, even without a bank mortgage in the mix. Maybe you can make a certain monthly payment amount (with a higher sales price and not much down-payment) and the seller could be ok with that. From my understanding of seller-financing there may can be more latitude in structuring a deal and coming to terms with the seller. Best of luck,