In simple terms, Seller Financing means the seller ishelping the purchaser to buy the house. Seller financing refers to atransaction in which the seller of a house provides all or part of thefinancing. Sellers may provide financing because they need to sell the propertyright away or they are having difficulty selling the house and want to providefinancing as an incentive to a buyer.
Banks follow a number of rules and regulations beforeapproving loans. The process is lengthy and time consuming. It's anunderstatement to say that banks are raising bars for loan eligibility, whichis making it more difficult to acquire finance. Seller financing comes to yourrescue at these times.
LETS LOOK AT AN SELLER-FINANCE EXAMPLE…
Here's an example that we have recently done. The sellerwanted $135,000, 6% Interest which makes the monthly payment $797.40 per month.(Principal & Interest) We set the term for 5 years. We paid for theinsurance and property taxes. This was all set up through an escrow company toinsure everyone was paid on time.
Monthly Payment: $797.40
Term: 2-5 Years (Negotiable)
Down Payment: $2,000
We paid the seller monthly payments for 5 years and thenpaid the balance off in full by refinancing with a bank. The initial term isset for 5 years but could be purchased any time before the end of the term.
Let's see how the seller did:
Sales Price: $135,000 – Down payment $2,000 = New PurchasePrice of $133,000. The seller received monthly payments of $797.40 for 5 years.They received monthly cash flow with no maintenance costs or repairs for theentire agreement. At the end of the term, the balanced owed was $123,762.45. Wepaid the balance off and the seller received a nice profit. The seller received$36,606.45 just in interest. Total payment for five years was $171,606.45. Muchbetter than receiving an All Cash offer 5 years earlier.
Seller financing is a great real estate investment strategyand one of the most profitable too. Now it’s time to find a buyer!