Seller/Owner Financing Question

[Manuel Sandoval]

Hi,

Recently I have become very interested in apartment investing, so I have doing a lot of research.

I started reading about seller/owner financing, and I'm confused about something. Buyers usually go through this option when they cannot get a loan through conventional means, such as from a bank. I understand that in seller financing, the seller takes the role of the bank, the agreement is usually around 5-6 years, and at the end of those 5-6 years, the buyers has to provide a balloon payment, which the buyer usually pays or refinances with a traditional third party lender who pays it. This is where I seem to not understand something:

How is the buyer able to refinance for the balloon payment with a third party (I'm assuming it's the bank) if the reason he is under seller financing is because he was not able to get a loan through the bank in the first place? Why would the bank agree to refinance now? Is there a possibility that the buyer cannot refinance?

I am a college student and I'm using this summer vacation to try to understand how all this works :D. If you have any other advice for me, I would truly be thankful for it.

Thank you all,

Manuel

[Account Closed]

There are reasons for buyers and sellers to want to seller financing.

For buyers poor credit is not the only reason. An investor may have a number of properties already and not have sufficent cash available, but have found a good deal. A buyer might have the cash, but would like to stay liquid. For buyers seller financing can be a nice way to get into a property.

Sellers sometimes have trouble selling their properties and look for alternatives such as seller financing. Not typically the sellers first choice though some sellers are looking for ways to defer capital gains. Some properties are difficult to find conventional loans on especially these days in this case seller financing is a way to get the property sold.