What is 'Seller Financing?'

When a seller assists the buyer by acting as lender, the seller may finance all or part of the sale. This is sometimes called 'Owner Financing' or 'Seller Carry-Back Financing.' The seller becomes the bank and is literally carrying back financing on the property instead of a financial institution or other third party.

However, maybe the seller needs cash out of the sale, and/or doesn't want to take the cash over a long period of time. There is a very active market wherein 'investors' buy seller financed notes for cash.

Most sellers assume that they will have to take a big discount (maybe 30% to 50%) if they sell their note. But because of the competition between investors, the discount will be significantly less.

Let's assume that a $100,000 property has been on the market for four months with plenty of lookers but few qualified buyers. Because of the time passed with no sale, the price has been reduced by 10% to $90,000. Let's further assume that we finally find a 'Qualified' buyer but the seller has to help with down payment assistance and/or pay a large portion of the buyer's closing costs. Total costs are seven percent ($6,300) of the sale.

Now compare this with a seller-financed sale where many of these unqualified buyers can purchase the property. The price will not need to be reduced and the seller won't have to pay any of the buyer's costs.

Conventional Sale Seller Financed Sale

$90,000 Sales Price $100,000

$4,500 Down Payment $6,000

$86,500 Amount Financed $94,000

$6,300 Less Assistance to buyer -0-

$8,000 Less other costs $8,500

commissions, title pol-etc.

$75,700 Gross proceeds to seller $91,500

-0- Discount to sell the note (15%)$14,100

$75,700 Net proceeds to seller $77,400

BONUS: The property sold in one (1) month and not four. Sellers have their cash much sooner.

Seller Financing offers many other benefits for both sellers and buyers. There is a multitude of buyers who want a home. They have the down payment and a good income to make payments. (They are probably paying more in rent now than the payments would be) but for any number of reasons they can't qualify for a conventional loan. However, the seller may not want to sell their note. This may provide a better investment than other alternatives' stock market, mutual funds, savings rate at banks, etc. Also, there are no application fees, no origination fees, no pre-paids, etc.: therefore more can be applied to the down payment.

As an 'Investment Realtor' I feel comfortable recommending 'Owner Financing' to many of my clients. It can be a good long-term investment or a way to sell quickly and receive cash.

To discuss Owner Financing options' give me a call: 210-415-8483.