What is Seller Financing?

If you have ever had a mortgage, I am sure you have envied the bank receiving your monthly payments.  Did you know you could use your own property to become a “private bank” and reap the same rewards as your local bank.  Seller Financing is the answer.

When a seller allows a buyer to make payments over time for the purchase of property, it is known as owner financing or seller financing.

This private financing by the seller can take the place of a bank loan or be in addition to a conventional mortgage.

The payment amount, interest rate, and other terms are agreed upon between the buyer and seller. The amount financed by the seller will depend upon the buyer’s down payment and whether there are any bank loans.

Here’s an example of how seller financing works…

• A property owner advertises his or her house for sale, either on her own or through an agent.

• A buyer makes an offer, and they agree to a sales price of $175,000 with a 10 percent down payment of $17,500.

• Rather than requiring the buyer to obtain a bank loan, the seller carries back the balance of $157,500 in the form of a note and mortgage. It could also be a note and deed of trust or a real estate contract, depending on the customary documents for that state.

• The note spells out the terms of repayment. In this case they agree upon 8.5 percent interest at $1,211.04 per month based on a 360-month amortization. The seller doesn’t really want to wait a full 30 years for payments, so the note requires payment in full, known as a balloon payment, within seven years.

• A title company or real estate attorney is used for the closing to be sure all parties are protected and the documents are in compliance with all state laws.

Bank Loan Vs Seller Financed Mortgage Notes

Because the buyer is making payments to the seller rather than an institutional lender, the legal arrangement is called a private mortgage, seller carry-back, installment sale, or owner financing.

The seller has the same mortgage rights as a bank, so if the buyer does not make payments, the seller can foreclose and take the property back.

When the seller prefers cash today rather than payments over time, the rights to future payments can be sold or assigned to a note investor on the secondary market.

Summary

Seller Financing allows you to become a “private bank” and receive monthly income for the life of the loan.  Using a title company or lawyer, setting up Seller Financing is easy, straight forward and provides you a different method to invest in real estate.    

Connect with Peak Notes Why not set up a meeting with a Peak Notes specialist to discuss the Note selling process.   Meetings are brief, cost nothing and can give you more insight into how you can maximize your investment potential! If your property is located in Florida, please click on this link and set up a meeting with John          Meeting with John     If your property is located outside of Florida, please click on this link and set up a meeting with Karen.      Meeting with Karen