"How To Finance Real Estate Using Seller-Financing"

Valerie P. Robinson

Most Seller's,in Today's marketing of real estate expect the buyers to pay cash. Or anticipate that the buyer will either seek financing from either a Mortgage Broker,or a Financial Institution. Many sellers have overlooked and haven't even considered financing the sale themselves! How? By using "seller-financing". Seller-financing simply implies -giving the prospective buyer either a First or Second Mortgage. If in a Second Mortgage,the seller can command a higher interest.This is one aspect which makes seller-financing advantageous. Seller-financing is not new to the Mortgage Industry. Its been called and known as, "Creative Financing",and as "Seller Carryback". In the Industry of 2006,its referred to as "Seller Concessions". However, seller-financing has a limitation of 6%. What does this mean? It implies that the seller can only assist or give a concession of 6% of the Sale Price of financial assistance to the prospective buyer.It cannot exceed this amount. This is so that the seller does not have a hughe amount of financial loss should the buyer defaults on the loan.Or not make any payments on the loan as agreed to in the "seller financing"transactions.

If selling a property should the seller consider using seller-financing? That answer must be determined by the seller. If the sellers having difficulty or has a prospective buyer whose qualified for a loan,but is lacking a small amount of the finance.Perhaps "seller-financing" might be considered as a favorable financing alternative. Using "seller-financing",the seller is advantageous because the seller holds the Trust Deed or Mortgage Deed.It should be noted that the seller doesnot hold the Deed to the property unless the seller is in the First position.Plus the seller is in a favorable position of receiving several payments from the prospective buyer. For an Illustration purposes,let's examine how "seller -financing" can be beneficial to the seller andprospective buyer.Let's use a simple real estate property purchase to illustrate the concept of "seller-financing". In our example we'll be usi ng typical interest rates with outlined loan specifications,terms and loan durations. WXAMPLE: "Mr. and Mrs. Seller sold their home for $150, 000.00 to Mr.Buyer. Mr.Buyer deposited 2%($3000) as a downpayment.Mr.Buyer was able to obtain 95%LTV(Loan-To-Value) on the property. Mr. Buyer has a loan for $142,500.00 and is guaranteed by the loan.Here is "How seller-financing", can assist both the seller and buyer in this situation. Mr.Buyer is lacking the remaining balance of $4,500. Mr. and Mrs. Seller agree to assist Mr.Buyer using "Seller-financing". The Sellers agree to assist Mr.Buyer only if,Mr.Buyer agrees to an interest rate of 10% for a loan duration of only 12 months(1year).What does the seller-financing look likes? Let's examine our financial figuration:

EXAMPLE: $150,000 Home Sale/Purchase price with a 2% or ($3,000)as a downpayment.Buyers loan Amount to be financed at 95% LTV -Loan Amount is for($142,500.00)plus the $3000 as a down payment.Interest rate of 6.5% at a term of 30 years. Buyer has only $145, 500.00. The Buyer needs an additional $4,500.00.That Amount is being financed using "seller-financing" from Mr.and Mrs. Seller, for 12 months and with an interest rate of 10%. Now Mr.Buyer has a monthly payment of $35.85 which must be paid to Mr.and Mrs.Seller in addition to making a monthly Mortgage payment of $948.10 and satisified the real estate transaction.This Sales and Purchase was made possible by the sellers use of "seller-Financing!"

The sellers and buyer benefit from using"seller-financing" in the Example transaction.The reasoning for the selection of the 12 months as the loan duration or loan term. Most buyers will have acquired some Equity in the property within 2 to 3 years.The short term of 12 months loan duration is to further assist the "seller" doing the 'seller-financing". Keeps the buyer from defaulting in making the loan payments as agreed. Plus within the two to three years after purchase,most buyerswill have decided to refinance the property by then. "Seller-Financing" can be advantageous to the seller.The Seller has sold a property in additon to receiving monthly payments until the buyer refinances the property. Or in this illustration,before the buyer refinances the property. Should a seller consider "seller-financing?".That answer depends uppon the seller, the buyer and their financial situtations. Does the seller want to loose a prosepctive buyer simply for the reason of lack for a small amount of the finance? Again,that depends on the seller. Unfortunately,the sellers demand of cash tends to over look an opportunity that "seller-financing" can provide. Especially if the seller have an Equity postion and can afford to finance the sale themselves. Should the seller consider financing a large amount of the purchase price? I advise that as a seller,know the risks involved.Plus get assistance and legal advice before proceeding. If you select to use "seller-financing" do so with a small amount,preferably between $2400.00 to$6000.It might be quite workable and beneficial. Any amount larger than$10, 000.00,needs to given careful and considerable thought.Especially if its the seller,first time entering into a real estate transaction using "seller-financing". I suggest that research and reading of several Real Estate Articles on "Seller-Financing" be read,and given consideration.If uncertain by what you've read,by all means contact an Attorney.Remember,"seller-Financing" if used with knowledge can have you come out a Winner!

Article by: Valerie P. Robinson Will Be Consulting and Seminars 1st Metropolitan Mortgage of NY Contact:(815)-936-9389

Valerie P. Robinson 1st Metropolitan Mortgage of NY

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