| Seller financing, in whole or in part, has been used | | | | her house, the closer the buyer's mortgage gets to |
| since the first time a homeowner decided to sell and | | | | 100% or more of the value of the house. This puts |
| could not find a buyer who could afford the house. In | | | | lenders at higher risk should a foreclosure be |
| recent years, however, with the easy credit of | | | | necessary. Most mortgage lenders, especially today, |
| subprime mortgages and 100% or more loans, seller | | | | set very strict limits as to how much the seller can |
| financing had fallen on hard times. Today, however, | | | | contribute. Typically it is in the 3% range. The key |
| because of the slowdown in the housing market and | | | | here, whether it is a seller paying closing costs or |
| the subprime mortgage crisis, seller financing may be | | | | giving the buyer a sum of money, is to be upfront |
| returning for another engagement. | | | | and truthful about the "source of funds." |
| What is seller financing? | | | | Rent or Lease with Option to Buy: Traditionally this |
| Simply, it is the seller helping the buyer to buy the | | | | has been popular when houses or other real estate |
| sellers property. The seller agrees to sell the property | | | | are hard to sell. The buyer signs a lease that may |
| in installment payments instead of a lump sum, the | | | | apply part or all of the rent toward buying the house, |
| seller agrees to take part of the purchase price in | | | | if the buyer decides to exercise that option. Most of |
| the form of a loan to the buyer, or some | | | | the time, these agreements give the renter a right |
| combination of financing that allows a buyer who | | | | of first refusal to protect her. The seller is protected |
| does not have enough money to put down or | | | | by putting a time limit on the lease and option. This |
| cannot get enough of a loan, to buy the house. | | | | way if the buyer does not exercise the option to |
| There are legal and ethical ways to do this and have | | | | buy, the seller can then sell the house. |
| the seller and buyer protected. Of course where | | | | More Basics: |
| money is involved, there are also under the table, | | | | Credit Check, including pay stubs and references: |
| unethical ways. We address only the legitimate and | | | | Make sure you get this information about your buyer. |
| advise you to do likewise. | | | | Proof of Insurance: Have yourself named as an |
| Types of Seller Financing | | | | additional insured on your buyer's policy. This way |
| Sale on Contract or Installment Sale: An installment | | | | you, as the seller, will get notice if payment is not |
| sale is a sale of property where the seller receives at | | | | made. |
| least one payment after the tax year of the sale. | | | | Proof of Tax & Assessments Payment: This |
| This is the old standby of seller financing. It generally | | | | should be public information and you should be |
| leaves the buyer unprotected until the very last | | | | checking to make sure these payments are made. |
| payment is made, because the seller retains title to | | | | Legal Requirements: As with any important business |
| the property until then. | | | | dealings, it is best to get a lawyer involved to make |
| Partial Seller Financing: If the buyer can qualify for a | | | | sure you are protected. This applies to both seller |
| mortgage, but for less than the purchase price, the | | | | and buyer. |
| buyer's mortgagor may agree to let the seller take | | | | Keep in Mind: Selling your house while keeping your |
| back a second mortgage for the difference between | | | | original mortgage and taking back a second mortgage |
| the purchase price and the qualifying amount. This is | | | | that includes the amount of your original mortgage is |
| a more complicated deal and the mortgagor has to | | | | called a wraparound mortgage. Wraparound |
| agree to it as well as both parties. In some ways, | | | | mortgages may be illegal or forbidden under the |
| both the seller and the buyer are better off than | | | | terms of your mortgage contract. To enforce this, |
| with a sale on contract. The seller gets most of her | | | | your mortgage contract probably has a due-on-sale |
| money and the buyer does acquire some ownership | | | | clause, meaning, if you try this, the mortgagor can |
| interest in the property. | | | | (and probably will) accelerate the note and demand |
| Seller's Contributions: Buyers like seller contributions. | | | | payment for the entire amount. |
| Why not? The more a seller "helps" a buyer to buy | | | | © 2007 Complete Books Publishing, Inc. |