Seller Financing Example

6 Replies

@Kyle Wenger  From a buyers point of view, using real numbers of my own, property for $140k, put 20% down, seller holds the mortgage for $112k.  Amortized the $112k over 30 years at 7.5% (this was 10 years ago when interest rates were higher), so $783 per month P&I.  5 year balloon, so balance due in full in 5 years.  I became the owner of the property and responsible for taxes and insurance, and simply made the payments to the seller each month instead of to a bank.

From my point of view - things to be aware of, get it appraised.  After the fact I realized I overpaid slightly.

Does that help?

- Tom

@Tom S. Yes, very helpful and a good example- thank you! Do you refi before those 5 years are up or how did you go about paying the balance in full? Is all this done through a lawyer and a contract? 

@Kyle Wenger  In this case, the seller was very happy and extended the note an additional 5 years.  In other deals I've done, yes, I had to refinance or sell the property when the 5 years balloon was due.

As mentioned, that's why I think an appraisal is important (generally not required by the seller, which is different from banks where they always require it).  With a 30 year amortization, you don't pay down a lot of principal in the first 5 years, if you overpay a bit initially, almost certainly you'll have to bring money to the closing table to refinance. 

And yes, everything done through an attorney.

- Tom

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