Can I buy a home with Seller Financing?
Today’s market is changing almost daily. With more mortgage regulations coming down the pipeline, it is becoming more difficult for certain folks to buy a home. For some, owner financing may be a way, and sometimes the only way, in order to buy a home. The short answer to the question, yes you can buy a home with Seller Financing.
In San Antonio I often come across folks who truly want to buy a home, but for whatever reason they are unable to obtain a mortgage. Let’s face it, life happens. There are a few things that you should be aware of when purchasing or selling a home with Seller Financing:
1 Make sure that as a buyer or seller, you fully understand what type of transaction you are a part of. Some types of transactions include contract for deed, lease option, 1st seller carry, wrap mortgage etc. In some cases the buyer will take title to the property, in other cases title will not be transferred until a later date when certain requirements are met. So how do you know? Use a real estate attorney that consistently works with this type of purchase. I tell my clients that say they know an attorney; If you were on trial for murder, would you use an attorney who specialized in divorce, or criminal defense?
2 Ensure there is clear title, and that your purchase is recorded, even if you are not taking title.
3 Use a third party collector to collect the monthly payments. This way you have a record of the payments, and can obtain the payoff right away when you need it. Most sellers will not keep accurate records for payoff, or tax purposes.
4 Most sellers are going to want at least 10% to 20% for the down payment, and the interest rate is going to be between 8% and 12%. The sellers are taking a risk on someone who cannot qualify at today’s rates, so yes the terms are going to be different than an FHA or conventional loan.
5 Use a Realtor who is knowledgeable of how Owner Financing works. They will likely know the attorneys and title companies to use to help with a smooth transaction.
6 This is a real estate transaction, so still do your due diligence, inspections, title etc.
7 And this is most important, make sure you are working on whatever it is that kept you from obtaining a mortgage in the first place. If it is credit, work on establishing good credit. If you are self-employed, begin reporting more income. Why? You are going to typically need to refinance, or obtain your own financing within 3 – 5 years. Again, make certain you know what type of transaction you are completing and what all the terms are.
I have helped many people become home owners with seller financing. If done right, it can be very rewarding for all those involved.
Please read this disclaimer: The way that seller financing is handled depends on what state you live in. For the purposes of this article (and all I write) are based on my knowledge and experience in the State of Texas. Please consult a local real estate attorney for the correct way to conduct an owner finance sell.
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