Seller financing is nothing new. It has been around for many years. Most people who have invested in real estate are familiar with two creative things that can be done when the property seller is willing to finance the purchase of their property: no money down (the seller does not require a down payment) and 0% interest rate. These are not the only creative things that one can do in purchasing a home with seller financing. Today, I want to mention a few other things that a property buyer might do when they purchase a home with seller financing:
- Delay on when first payment is due- This can be helpful for a property buyer when they are renovating a property seeking to either rent the property or to sell the property. The property seller and the buyer can agree to a specific date or they could agree that the payments do not start until the property is occupied.
- Step interest rate- What this means that instead of the property buyer paying a fixed interest rate that they pay (for example) 2% interest rate for a number of years… then 4% interest rate for a number of years… and 6% interest rate for a number of years. There is no law that says that the property seller cannot do this. If they are the bank, they can do it if they are ready and willing. This can be advantageous for the buyer and seller alike in different ways.
- Property seller agrees to let their mortgage be in second position- This can be helpful to the property buyer if they need to get another loan to either make the down payment on the property or to renovate the property. It would be best for the purchaser of the property if the first position mortgage is paid off before the second position mortgage payments start.
- Substitution of collateral- What this means is that the property seller agrees to owner finance the property and agrees to let the property buyer substitute another property similar in price to owner finance if the first property is sold off. If a property buyer uses this method, they could buy a property with owner financing… sell the property in a few years… and then use the mortgage you had with the first property to purchase another.
- Right of first refusal to buy the real estate note- What this means is that the property seller who owner finances the property gives you the right to purchase the real estate note if they ever decide to sell the note. If you are the property seller who finances the purchase, there may be come a time when you need that money at one time.
These are just a few creative things that can be done with seller financing. They are not typically available with your local community bank or with a national bank like Wells Fargo. However, they are all legal and can be creative ways to buy a property. Best wishes in your continuing real estate success.- R.L. Wall