How to Get Seller Financing for a Home

By eHow Personal Finance Editor

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Having trouble getting traditional financing? If the seller doesn't need all the cash from the sale of the property to buy another home, he or she might be willing to offer you seller financing.

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Instructions

Difficulty: Moderately Easy

Things You’ll Need:

Real Estate Agents
Real Estate Attorneys
Online Mortgage/finance Services

Step1

Find out if the seller still owes anything on the property. If the property has no liens against it, the seller could also act as the lender in the transaction; payments would be made to the seller, not to a mortgage lender or banking institution.

Step2

Make an offer to the seller. Make it clear that you want the seller to finance the purchase.

Step3

Handle the purchase agreement just as you would with a regular lender - only you'll be the one to offer what terms you want: how much you want to finance (this depends on your down payment), how long you want to finance and what interest rate you want to pay. Of course, the seller must agree to your offer. Use a purchase agreement and receipt-for-deposit form.

Step4

Open an escrow account with a title company or have a real estate attorney handle the transaction.

Tips & Warnings

Make sure you know the value of the property before you commit yourself to the agreement. Include an appraisal contingency to make sure the home is worth what you're paying. (Appraisal cost: $300 to $350 for a single family residence.)
The seller may want a copy of your credit report.
Interest paid to a seller for seller financing is deductible as long as it follows the same guidelines as for a standard mortgage.
The transaction time for seller financing is usually much shorter, as there is no formal loan approval process.
Seller financing saves the buyer money: There are no lender fees, no loan fees, no points. It's a good deal.
When you get an appraisal for a purchase, the appraiser will typically only confirm that the property is worth what you're paying. Most likely the appraisal won't be a true determination of value unless you instruct the appraiser to appraise the property for market value. (The appraiser will need the seller's approval to get into property. An appraisal should take anywhere from one to three weeks to complete, depending on how busy the appraiser is.)

Comments

Anonymous said

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on 8/8/2006 If the seller is interested in seller financing, but needs cash at closing, you can suggest a simultaneous closing. The seller would sell the property, taking back a mortgage and then turn around and sell this mortgage note at closing for cash.

Anonymous said

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on 11/22/2005 If the buyer is also taking out a conventional loan, then the seller's loan could be secondary. If the buyer defaults, then the seller could lose. This is why it's good to engage an expert before finalizing such an agreement.

Anonymous said

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on 11/22/2005 For sellers of single family residences, set your note rate above 9% and avoid balloons shorter than 7 years. If you ever sell your note, its value will increase significantly in the secondary market. Good tutorial can be found at Noteworld.com.

Anonymous said

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on 11/22/2005 In order for you to deduct the interest paid to the seller on your income tax return, you're going to need the seller's Social Security number. (The IRS matches to make sure the seller is declaring the interest earned.) Get the SSN when you sign papers.

Anonymous said

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on 11/22/2005 If homes aren't selling in your community, then agreeing to carry paper for the buyer of your residence is good for you, too. Have your bank, attorney or an escrow company do the paperwork to protect yourself and show you what you need to do.

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