Owner Financing | Seller Financing | Owner Financed | Seller Financed Mortgages
Seller Financing / Owner Financing
...Owner financed mortgages, seller financed mortgages...
When an owner sells a property and agrees to lend the buyer the money necessary to purchase and close the transaction, this transaction is known as owner financing. Basically, the seller is assuming the role traditionally played by the mortgage company. The buyer will make payments to the seller subject to the terms of the loan agreement. Most other aspects of the transaction are the same as conventional financing. The down payment is negotiated between the buyer and seller. Once that is agreed upon, the terms of the mortgage are established.
Terms of the mortgage are not subject to or limited by what local lenders may be offering. Buyers and seller can be as creative as they want to be, as long as they can reach an agreement.
Interest rates can be fixed or adjustable, monthly payments can be fixed or graduated, terms can be for up to thirty years and can contain language that includes periodic bump payments (an increase in the regular payment amount) or a balloon payment (a large lump sump payment) due at a set time in the future. Of course, all of these things are negotiable which is typically not the case with institutional lenders.
This flexibility expands your market place by helping more buyers to qualify. And, with seller financing, there is always room for compromise. You, as the seller, can negotiate what works best for everyone, -- give a little, take a little. Once you have created the note and secured it with a lien on the property, you have a marketable instrument that can be traded or sold in the future.
Seller financing increases the number of potential buyers, but has other advantages including a quick closing. Traditional lenders, like banks, usually take sixty days or longer to close. Your mortgage can be created and closed in a week or less. Other advantages include tax benefits, a reasonable return on your money, and a safe investment, since it is secured by real property.
The next commonly asked question is what do I do with this contract now that I have created it? There are a couple of options you might want to consider. Do you want to keep the contract and handle the collection of payments and the follow-up of taxes and insurance yourself or do you intent to turn these responsibilities over to someone else?
Let's deal with the first option; keeping the contract. If this is your intention you must be willing to keep accurate books or employ an escrow company to handle this for you. For a small monthly fee you can hire an escrow agent to collect payments, send interest statements and to be certain that real estate taxes and homeowners insurance policies are paid promptly and kept current. If you want to handle these duties on your own; American Equity Funding offers a free Note Owners Manual that will explain and track your accounts for you.
The second option you have available is to offer your contract for sale to a mortgage company or Note broker. There are many Note brokers to select from American Equity Funding Inc. is one of the more established firms having nearly seventy five years of collective experience in the note business. Selling your note and receiving the best price possible will depend largely on how it was originally set up. That is one of the best reasons to contact a professional prior to closing your transaction. They can assist you in what terms will have the most favorable pricing, if you decide to sell your private mortgage. Often a slight adjustment in the terms can mean thousands of dollars to you in the future. However, these are things that must be considered in the beginning, probably at the point you decide whether or not to offer seller financing. Amount of the down payment, interest rate, term and the buyer's credit rating are all factors that must be considered.
This is called "owner financing".