Seller Financing Loans Guide

       
     Occasionally, you'll find a seller who is willing to play banker and carry the financing. This can be a great win-win for everyone if it is done right. The buyer can save thousands of dollars in bank closing costs, and the seller can get 4 or 5 percent more return than if she put money from the sale in CDs. From a paperwork standpoint there's not much difference between a bank and an individual seller being the investor.

How do you find these deals? If you're shopping through the news-papers, the owner will usually advertise "owner financing." You can also ask the owners when you call about a property if they're interested in carrying the financing. Also, properties listed on the realtor's Multiple Listing Service (MLS) wi11 disclose if the owner is willing to consider carry back financing.

Seller financing has gotten a bad rap in some areas because some owners have targeted people who can't buy a home through normal means. They offer these buyers a chance to buy a home they otherwise couldn't qualify for but charge them high interest rates with balloon payments, a scam created to get a higher cash flow from the property than renting would generate. Many times the buyers can't meet the unrealistic terms, so the owner repossesses the home, puts it back on the market, and the cycle continues.

A variation of this scam involves a lease option, where the seller charges a high monthly payment but agrees to credit part of the rent back to the buyer for a down payment sometime in the future. The scam enters in when the seller creates terms he knows the buyers can't possibly meet so that they will never get the credit.

Still, seller financing can be good for both buyer and seller if it is used correctly. For instance, one investor, taking a long-range strategy, bought seven homes over a 10-year period and concentrated on paying them off during his working years. When he reached 65 and retired, he sold the homes and carried the financing at the same interest rate and 30-year terms a bank would. The interest alone from the notes he carried on the properties generated several thousand dollars a month in retirement income.

Buying a home with seller financing can be much simpler than dealing with a bank's paperwork, and saving about four thousand dollars plus in bank closing costs doesn't hurt either. Still, it's best to have an attorney look at the deal before you commit. Take comfort that spending a few hundred dollars in attorney's fees is a lot less than paying bank closing costs and being taken advantage of.