Seller Take Back/ Seller Financing

Seller Take Back/ Seller Financing Seller financing, seller take back or owner financing is used often as a form of financing Real Estate. Instead of getting a loan from main stream lenders such as bank, mortgage companies, or other financial institutions the seller arranges a direct loan to the buyer. There are many advantages to the purchaser lower closing costs, lower down payment, and better terms to name a few. The seller’s advantages are they still maintain some control over the situation, and they sell their property.

Seller financing is often used as second loan for the property. Since second mortgage has higher the interest rate can be a little higher. In this case the buyer will make small monthly payments to the seller and a balloon payment at the end or pay larger monthly payments to avoid the balloon payment.

When a seller finances the property, it is better for the sellers to break the note into two smaller amounts rather than one big loan. A note is not sellable unless the loan to value ratio (amount of the loan/value of the property) is 80% or less. If seller needs to sell the note to get cash and the loan to value ratio of the note is greater than 80%, the seller will have a difficult time or will be unable to sell the note. Solution: If a buyer puts makes a 5% down payment and the seller finances the rest, it is better for the seller to make a loan for 80% of the purchase and a second loan for the remaining 15% of the purchase. With any loan, the maker of the loan must report the tax on interest earned on the note (1098 form).

There are a number of companies that specialize in services for note buyers and sellers. If you want to sell a property in which you have significant equity, you can turn your property into a safe investment by selling it and holding the note.

For more information on Buying, Selling, and Investing in Real Estate go to Singer Homes Inc.