Will a seller financed deal show up on buyers credit or considered on debt to income?

6 Replies

I am considering purchasing a seller financed home and want to know what the benefits are to the buyer (me)? I can get traditional financing through a bank but was wondering if I go the "seller financed" route would that be more advantageous? Will this seller financed payment count as a debt if I apply for traditional financing in the future? Will it show up on my credit? Any insight you all can share is greatly appreciated.

It may or may not show on a credit report, depends on the servicing and you should have the loan serviced.

Failure to include the debt on a future loan application is mortgage fraud, wanna go to jail? Your debt is easily found, I suggest you disclose the loan. :)

NO I do not want to go to jail. I am a new investor so trying to educate myself about the various, creative financing options. If I can get a traditional mortgage through a bank why would I elect to have it seller financed? What are the benefits to the buyer?

@Account Closed  if you do a seller finance you could get a lower interest rate from HO then you can get at the bank. You could put a small deposit instead of 20% on a loan.  You could structure the deal any way you and the seller want.  Just make sure when you are done the negotiations you get the loan serviced.

@Account Closed  It will only show on your credit report if the person who is holding the notes goes to a servicing company so it is recorded. That depends on the seller. Now a-lot of times you buy a home from someone with seller financing and they hold the note for 6 months to season it and then sell the note to another investor or a firm and then it will most likely show up on your credit because these are more sophisticated investors.

In regards to the benefits of owner financing you won't have to pay closing costs to a bank. You can sometimes purchase a property with zero down or a minimal down payment but a seller financing deal will not hold a note for 30 years as a bank would. And you typically have to pay higher interest. Their are a few podcasts on seller financing and note investing I think those would teach you a-lot if this is really something you want to pursue.

Vanessa, 

If you choose the seller financed route, you could potentially continue investing under the bank's stringent debt-to-income radar, so to speak. In our still relatively limited experience, seller financiers are usually looking to get a higher asking price in exchange for the favor of the private loan. My wife and I have obtained three traditional loans and one lease with the option to purchase, resulting in most banks turning us down based on debt to income (non-portfolio lenders). A couple of our cash flowing properties do not yet count towards income because they are not fully seasoned. Meaning, the bank wants to see that a property cash flows for typically one to two years of tax returns before they count it as income.

 Robert Kiyosaki is a big advocate of seller financing, because no one would give him and Kim a loan for years. So he bought up several owner financed properties that offered 0% down, and he cash flowed. I'm sure that many of us will agree that just because you can get a bank loan, it does not mean you should. And private financing can be wise if you are a diligent investor, which it seems like you are:)

*If I would have known then what I know now, I would have used my first loan to land the largest deal that I could have. Then, I would have sought out seller financing from there. But who has the confidence to go really big on their first deal? It's wise to stick your toe in the water first and fail fast in a small way if you're going to fail, right Vanessa?

Best of luck and good question,

Mike

Whenever I have used seller financing as a buyer I always put in the note that the note holder must give me the first right of refusal to purchase my note at the same discount they are selling it at. If you have access to some money you can increase your equity in one jump. At least you have the option of saying yes or no before it is sold.