Seller Financing to Reduce Down Payment and Closing Costs

Specialist · Washington, DC · Member since 2019 · 45 posts · 20 votes

I bought a primary home recently which took my cash reserves down. I am thinking that seller financing is a way to stay in the hunt.

What are some of your examples of seller financing deals you succeeded with and how was there value for both sides in the deal?

What other methods provide an entry for low liquidity? I'm not being creative enough and would love any suggestions.

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Karl McGarvey
Real Estate Agent · Houston, TX · Member since 2019 · 763 posts · 500 votes
4y
Out of three deals I have done, two have been owner financing with another four owner finance purchases happening by about Jan 1. It is the best way to buy a house (and sell one), but the deals are hard to come buy. When I find the opportunity I offer 10% down to keep cash in my pocket but also offer an interest rate that is comparable with todays rates or slightly lower, showing the seller the benefit of me staying in that deal as long as possible so that they make interest off of my purchase. I recently sold a condo for 240K at 6% interest OF, in 5 years that condo will have become 300K in my pocket and the owners will probably keep it longer than that because I gave them such a competitive rate.
Remember, to OF, the sellers have to own the home outright. Mortgage companies typically will not allow a wrap loan for an Owner finance deal to occur because of the risks involved to them.
Big picture, once you find a possible deal, find out what the sellers motivation is. Some are looking for long term income, some want cash up front. Long term my goals are to pay off my properties and sell ALL of them using OF to provide monthly income for me to retire off of (on top of all of my other investments).
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Da Shiek Woodard
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Specialist · Washington, DC · Member since 2019 · 45 posts · 20 votes
4y
Just so I can wrap my head around why someone would do seller financing, let me see if my interpretation is correct. Are you saying you would rather OF your properties in retirement rather than selling for cash and migrating your portfolio into an annuity?
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Wale LawalBusiness Member
Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
4y
@Da Shiek Woodard
The Advantages of Seller Financing
This alternative to traditional financing can be useful in certain situations or in places where mortgages are hard to get. In such tight conditions, seller financing provides buyers with access to an alternative form of credit.

Sellers, in turn, can usually sell faster and without having to make costly repairs that lenders typically require. Also, because the seller is financing the sale, the property may command a higher sale price.

Lower Closing Costs
Closing costs are indeed lower for a seller-financed sale. Without a bank participating, the transaction avoids the cost of mortgage or discount points, as well as origination fees and a host of other charges that lenders routinely extract during the financing process. There's also greater flexibility, at least ostensibly, about the loan provisions, from the required down payment and the interest rate to the term of the agreement.

The seller's financing typically runs only for a fairly short term, such as five years, with a balloon payment coming due at the end of that period. The theory—or the hope, at least—is that the buyer will eventually refinance that payment with a traditional lender, armed with improved creditworthiness and having accumulated some equity in the home.

Seller Financing for Buyers
For all the potential pluses to seller financing, transactions that use it come with risks and realities for both parties. Here's what buyers should consider before they finalize a seller-financed deal.
Read this article for more information https://www.investopedia.com/a...
Good Luck!
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