| If you are selling your home and your existing | | | | process, sellers who normally would have to settle for |
| mortgage is already paid off, and you don't require the | | | | a lower than desired price for their home, can instead |
| proceeds of the sale all at once, then you may | | | | offer a slightly lower interest rate in return for the |
| consider financing the sale yourself. | | | | original asking price. |
| Unlike when investing in a fluctuating market, holding the | | | | There are two common types of financing used with |
| loan on a mortgage assures you of a predetermined | | | | most vendor loans – a purchase money mortgage |
| interest rate. Now that banks have started tightening | | | | or an installment contract. With a purchase money |
| their lending criteria, some prospective homeowners | | | | mortgage, the seller pretty much plays the role of the |
| are finding it more difficult to obtaining mortgages and | | | | bank. They receive a cash down payment from the |
| seller financing solves the problem. In addition to the | | | | buyer, then proceed to take back the mortgage on the |
| investment benefit, homeowners find that offering to | | | | remainder of the balance. The buyer gets a deed and |
| take back the mortgage gives them a sellers | | | | title to the property, and commits to making monthly |
| advantage in this tight buyers market. | | | | payments on interest and principal. |
| Generally, the seller and the buyer come up with a | | | | Installment contracts are generally held for shorter |
| mutually agreeable arrangement that outlines the | | | | terms and the deed and title are not handed over until |
| payment, deposit and payment schedule, without the | | | | the amount is paid in full. The buyer lives in the home, |
| benefit of bank involvement. Instead of financing the | | | | paying off the interest in regular installments over the |
| entire mortgage amount, the seller may consider taking | | | | length of the contract with the balance due when the |
| a loan on a portion of it. Often times, people want to | | | | loan matures. In most cases owner held mortgages |
| buy, but the banks won't give them the amount they | | | | have shorter terms of five to seven years and finish |
| require. These types of loans are often short term and | | | | with a balloon payment. |
| at a fairly high rate of interest. | | | | Since there are no banks involved, it is critical that the |
| It's common for banks to request at least 20 percent | | | | buyer does his research with regard to uncovering any |
| down, or the borrower will have to agree to pay for | | | | tax liens, or claims that could affect property transfer. |
| private mortgage insurance. This adds an extra charge | | | | Also important are a current property appraisal, credit |
| of up to half a percentage point to the mortgage. | | | | report and background check for both parties. If the |
| Generally the individual seller requires only a minimum | | | | buyer defaults, then the owner must go through the |
| 10 percent down payment, but it is to the buyers | | | | process of foreclosure or eviction before they |
| advantage to put down as much as possible. | | | | eventually retain original title again. |
| Interest rates in a seller financing arrangement are | | | | When a buyer is applying for an owner held mortgage, |
| generally a few points above market rates because | | | | they should provide the same financial documentation |
| the lender is taking on the risk, especially if a buyer is | | | | that they would if applying for a loan at a bank. The |
| pursuing this avenue of financing because of rejection | | | | seller will need a good real estate attorney, realtor and |
| from a bank or other lender. During the bargaining | | | | possibly an accountant overseeing the transaction. |