Seller Financing In A Slow Market

Seller financing (also called a seller carry back) is the back bone of all the late night infomercials. It is popular with all of the get rich with real estate books. The reality is that 99.9% of people selling real estate would rather have their cash now. They don't want to rely on a buyer paying them over time.

That's not to say that it is impossible to obtain. The most common time you will start seeing it is in a slow real estate market. Why? Because homes aren't selling and the more desperate people become to sell their home, the more likely they are to accept an offer that includes seller financing.

Likely Candidates for Seller Financing

Most often if the seller owns the home free and clear they are going to be more open to carry back a note on the property as part of the sale. If the current owner has a mortgage they are going to have to pay it off in order to work out a payment plan with a buyer directly. All mortgages I have ever seen have a "due on sale" clause meaning if there is a new owner the current mortgage is due in full right now. Perhaps if the lender doesn't know the property has changed ownership the original mortgage could stay in force, but I guarantee if payments start coming in late the lender is going to find out and call the loan due immediately.

Investors may be more open to carrying back a note on the property. You may be able to work something out if the home has not been rented, is vacant, or if the investor was speculating and the market turned downward on them. If they are not interested, you may be able to work out a favorable lease purchase arrangement.

Retirees may also be willing to entertain an offer containing a seller carry back. A note carrying a decent interest rate could be a nice supplement to their retirement income while still being 100% guaranteed by the property. After all if the buyer doesn't pay, the seller is going to foreclose on the home.

Pros and Cons of Seller Financing

Seller financing allows for quick sales. The buyer is not going to pay any closing costs, appraisal fees, or other fees commonly associated with a mortgage. There is no qualifying either. Although the seller should still check the buyer's credit to determine if the buyer can pay back the note. The buyer may be able to purchase a home that they could otherwise not qualify for.

The seller benefits by receiving a note with a higher interest rate than a typical mortgage. There has to be some incentive for the seller to agree to this payment structure, right? The seller also may have been unable to sell the house timely without agreeing to carry back all or a portion of the loan.

The cons for the buyer are paying a higher interest rate than they typically would if they obtain conventional financing.

The cons for the seller should be fairly obvious. They aren't receiving all of their money now, but instead over a number of years. There is the risk that the buyer will not pay back the loan and now the seller has to deal with the headache of foreclosing.

After reading about seller financing you can return to our Arizona mortgage loans section.