For Sale by Owner News and Articles
Financing a Home
- Free-and-clear homes
The best candidates for seller financing are homes that are free-and-clear with no mortgage, or a small one. Statistically, almost 50 percent of U.S. homes have no mortgages.
Other alternatives are homes for sale with assumable first mortgages, such as older VA, FHA and assumable rate mortgages. Then the seller can carry back a second mortgage to fill the finance gap.
- Vacant homes sold by retirees or wealthy sellers
Elderly home sellers often need additional retirement income. They're hoping for a cash sale so they can invest the proceeds at the bank, perhaps earning 5 to 6 percent interest.
If you offer these sellers a mortgage at 7 or 8 percent interest, you look like a hero because they didn't know they could earn such high yields with safety.
- Vacant homes that have been listed for sale several months
Additional signs of a motivated seller who might carry back a mortgage include vacant houses that have been listed at least 60 days and/or that are in less-than-perfect condition.
Fixer-upper homes appeal to only a few buyers and can be hard to finance with new mortgages. Your offer for seller financing might be especially welcome.
How to convince home sellers to finance your purchase
Having bought many investment rental houses with seller financing, my experience has been that most sellers (and their realty agents) never considered seller financing.
They might also fear foreclosure if the buyers' payments are not received on time.
Frankly, foreclosure can in some cases benefit a seller who will then either get paid in full at the foreclosure sale or get the house back to sell again for a second profit.
To reassure reluctant home sellers, use these techniques:
- Offer to prepay six to 12 months of mortgage payments (instead of a big down payment) at the closing.
- Give the sellers a year's post-dated payment checks so all they have to do is deposit one check on the first of each month.
- Accompany your realty agent to present your seller finance offer so the sellers can meet you.
Home seller financing is the best, cheapest and easiest way
Home seller financing is the best, cheapest and easiest way to finance your home purchase because there are no mortgage-approval uncertainties.
However, most sellers and their realty agents are not familiar with seller financing, so buyers must convince sellers of the advantages.
The best seller-finance candidates are free-and-clear vacant homes listed for sale several months by elderly or wealthy sellers who want a fast sale for top dollar.
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