My House Won’t Sell – Should I Offer Seller Financing?

Article by Jeff – The Note Coach

Without notice mortgage originators have stopped creating sub-prime loans and this large group of buyers/borrowers is now left with nowhere to secure financing. Today, there is a staggering number of potential real estate buyers who can only look to the property seller for the financing they need. While this seemingly simple step of financing the buyer may seem like a good idea, we recommend you learn some fundamental elements of the business before becoming a mortgage lender.

Seller financing is rapidly emerging as THE solution to the current crisis in conventional lending. It’s responding to the sluggish real estate market by presenting a smart alternative to conventional lending. By offering to finance the sale of their properties, owners are selling up to 70% faster than those that are available for purchase only through conventional loans or cash. They’re also selling at prices much closer to market values.

Seller financing is a sensible way to sell property and extremely common all over the United States. (It has been estimated that approximately 10% to 15% of property sold is now sold with seller financing.) Offering to finance the purchaser of your property can help you sell it quickly, may provide tax benefits and can give you a nice source of monthly income.

Many times a property owner considers using seller financing as a quick and easy way to sell their property. In fact, sometimes they ignore the questions of qualifying the buyer and properly underwriting the sale (obtaining an adequate down payment, interest rate, etc.). You can’t assume that your investment is protected simply because it is secured by your property. You may be able to get the house back in the event of a foreclosure, but what if your potential buyer destroys the property?

In most real estate markets – those that have fairly aggressive lender underwriting and affordable interest rates – most properties sell with a 3rd party qualifying the borrower and the collateral (the property) and then extending a loan. So the question to ask is, how can I determine if the property I’m selling falls outside of what most traditional mortgage lenders want. Secondly, when can I safely seller finance a property to a buyer who cannot get a conventional loan or doesn’t want to get a conventional loan.

First let’s focus on the property. Traditional third party lenders tend to shy away from single-family homes with any of the following issues: sale price range (usually under ,000 in value), repair or condition problems, improvement to land ratio (i.e. small house on 25 acres). In addition, other types of property such as land only, and unique commercial property are all difficult to finance through a third party. If a property of any type is quickly and easily financed by a third party, why should I seller finance it? The answer is maybe you shouldn’t. It depends on the amount of time, energy and money you have to devote to maintaining and showing the house. Each market determines the amount of time it takes before a property will sell and each day that your property is not sold is costing you time and money.

Seller financing is suitable for a variety of properties, including single family homes, multi-family units, commercial properties, mobile homes, farm acreage, ranches, and raw land. Once limited to low-cost properties, seller financing is now offered on million-dollar homes. With all the lending issues involved with jumbo loans (typically over 7,000) we are seeing more and more high end homes offering seller financing.

The growing popularity of seller financing has surprised all us, even those in the seller financing business. Two years ago, only 1 in 400 real estate transactions used seller financing. Today, that number has increased to 1 in every 50. An 800% Increase!

The demand for seller financing has increased significantly since 2007 and will continue to climb as more borrowers find they don’t qualify for conventional financing. Offering seller financing to potential buyers is a more powerful marketing tool now than ever before.

If you are considering selling a property with Seller Financing give us a call so we can provide you with the right resources to make the most out of selling your property.

Here is why this is happening

Seller Financing Advantages for the Seller

• The number of potential buyers will increase significantly.• The sale price should not have to be reduced below market value.• The sale will close more quickly than with bank financing.• Any potential income tax liability from the sale may be able to be deferred.• Lower overall closing costs and time invested.• In most cases, the note you create can be sold and converted into cash at any time.• In some cases seller financing is the only way to sell the property especially when we start looking at land ratios, condos, or high priced houses situations.• The seller can receive a higher yield on his/her investment by receiving equity with interest.• The seller could negotiate a higher interest rate.• The seller could negotiate a higher selling price.• The property could be sold ‘as is’ so there will be no need for repairs.• The seller could choose which security documents (mortgage, deed of trust, land sales document, etc.) to best secure his/her interest until the loan is paid.

Seller Financing Advantages for the Buyer

• The buyer will not have to meet rigid bank qualifying standards.• The buyer may be able to purchase a property the banks would not qualify him for.• The buyer will pay lower closing costs.• The buyer may be able to make a smaller down payment than the banks would require.• The buyer may have the option of creating flexible payment terms.• The buyer won’t have to pay origination points or mortgage insurance.• The buyer may not have to establish a prepaid escrow account for taxes and insurance.• The buyer can request special conditions for the purchase, such as inclusion of household appliances.• Both the buyer and the seller can make substantial savings in closing costs.• They can negotiate interest rate, repayment schedule, and other conditions of the loan.• The borrower does not have to qualify with a loan underwriter.

Tags: Financing, House, Offer, SELL, Seller., should, won’t