Beginner’s Guide to Seller Financing Real Estate

    It’s not an easy task to find a seller financed property or complete a seller financing transaction successfully. You must first know what is seller financing, what it is all about, and then start your Austin home search.

    Seller/owner financing creative lending method wherein a home buyer can get a mortgage from the seller in addition to or instead of a bank loan. This concept is used by homeowners as a certain incentive to bring in potential buyers. It is also used to sell properties that would otherwise be unsellable because of negative or no equity. Buyers, when purchasing real estate using this technique, do not have to meet conventional lending standards and requirements. Instead, the buyer only has to have enough money saved for a down payment and be able to afford the monthly payments. Naturally, the seller becomes flexible with job history, credit score, past credit problems and other such issues, and will approve the home buyer for the home purchase.

    There are many different types of seller financing and the three most popular types being used in Texas are:

    • The traditional owner finance, used when the property is paid for.
    • The wraparound mortgage, which involves giving the buyer a deed and arranging for the buyer to make monthly payments to the seller so the seller can in turn pay the existing lender.
    • The land trust, which involves deeding the property into a trust as a “parking place” of sorts until a credit-impaired buyer can obtain financing.

    A common question we receive is from buyers who are curious to know what the qualifications are to purchase an owner financed home. There are no general rules mandated for seller financing. In fact, here, every seller sets his standards. It is generally offered to buyers with a poor credit rating and financial problems. But this does not mean that even though the note is secured by the deed of trust, that the seller won’t ask for an assurance that they will be paid back in the form of credit reports, verification of funds, verification of employment and salary, and other such information.

    The major benefit of a seller finance arrangement is that a buyer can take a mortgage without the need to adhere to tough underwriting guidelines. Interest rates may be a few points higher than the national average, but the buyers save on Primary Mortgage Insurance (PMI) and closing costs. Everything is negotiable between the buyer and the seller and 99% of the time, seller financing transactions are a win/win for all parties involved.

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