seller financing

4 Replies

with seller financing what if the owner has which in most cases is the case has a mortgage and still owes 80000 and is selling for 120000 how does that person benefit other than interest from the investor. And what would entice someone to do so. They would still have the debt to income when trying to get a new place. I guess why would I want to do this if say I am the seller. 

Seller finance allows you (the seller) to bring in more monthly income than your monthly mortgage payment and for a term that is longer than your mortgage.  For example, if you have an $80K mortgage at an interest rate of 5% for 30 years, your mortgage payment (principle and interest) will be $429 per month.  If you have 27 years remaining and you sell the house for $120K seller financed at 6% with 10% down for 30 years, you would get $12K cash and the monthly payment you would receive is $580, for positive cash flow of $151 per month.

Hope this simple illustration shows you how seller financing works (it doesn't include any upfront points or fees), but you get the idea.  With Dodd-Frank, you have to be very careful in the way to do seller financing (that's beyond my knowledge but check out this website: http://www.qualifiedmortgage.org/definition/).  There are now "qualified mortgage" rules you have to follow or the borrow can come back and sue you for all of their payments if your foreclose on them.  Talk to a real estate attorney about the impact of Dodd-Frank.

God Bless You!

Thank you Michael for the great advice. Even though this is not my post I appreciate the fact you to the time to answer his question as I wondered the same thing.

Hi @Aaron L.  

Types of Seller Financing Arrangements

All-inclusive mortgage/DOT or Wrap Around Mortgage. 

Junior mortgage. 

Land contract. 

Lease option. 

Assumable mortgage (rarely exists now). 

ROFR - Right of First Refusal and a Lease.  

Getting Professional Help

Get a team - Broker licensed in your state, Lawyer, CPA, and RMLO.  

The RMLO, with Dodd Frank and the Safe Act, and changes to TILA, et al, the RMLO can steer you in the right direction on explaining Seller Financing to the buyer.

Tips to Reduce the Seller's Risk

Require a loan application. 

Allow for seller approval of the buyer's finances. 

Have the loan secured by the home. 

Get a down payment. 

Negotiating the Loan see www.BankRate.com and www.HSH.com -- 

Hiring a Loan Servicing Company See http://notecollection.com/

That is very helpful thank you

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