Seller financing and buy property ‘subject to’
Are you a home seller who is having difficulty in finding a buyer?
As a buyer, securing a mortgage can be difficult if your financial situation does not pile up neatly according to lender requirements. So will it not be great to find another way through a middle man to complete your purchase transaction?
Seller financing can help you in both instances – buying or selling a house. Don’t know what seller financing is? Don’t worry. This article will explain everything about seller financing and why you may not have heard about it.
What is seller financing?
The name is the meaning. The person selling the house can become the lender instead of a bank and help the buyer make the purchase.
How does it work?
The seller and buyer undertake a promissory note complete with interest rates, repayment schedules and default conditions. The buyer pays monthly to the seller with interest. The seller can in some cases sell the note in which situation the buyer has to send the payment to the new owner of the note.
Seller financing is a short-term payment arrangement, usually for five years. There is always the chance that such arrangements can backfire if the agreement is not made with caution.
Why is it uncommon?
A seller may object to the agreement saying “I do not have the money” or “I do not want to be a part of something so risky.” A second reason is that a seller may need full proceeds to purchase a next home.
Advantages and disadvantages for buyer
The deal closing is faster than if you go through a bank process. There are no bank fees or appraisal costs which allow the buyer to buy the house at a lower price. The down payment can be negotiated with the seller which is usually not possible with a bank.
The disadvantages may include high interest rates; prove that you are an honest and a worthy buyer; and conditions may change if the seller sells the note.
Buying a property ‘subject to’
This is a technique that allows you to purchase real estate property without virtually any cash by leaving the mortgage of the seller in place. In this technique you do not need a loan to buy the home as you are going to buy a property that is ‘subject to’ an existing loan. This means that the property deeds are transferred to you and both of you – buyer and seller will pay the mortgage. The buyer is still liable to pay the mortgage as his name is on the loan.
Isn’t it a great way to buy property? Don’t get all excited about it. Buying a property ‘subject to’ does have certain drawbacks.
The ‘due on sale clause (DOSC)’ states that a lender can call the loan due and payable immediately when the transfer of property occurs. For example, if I own a $250,000 home and have a mortgage payment of $240,000, I jump at the chance after the agreement signing that commits you to make the monthly payments when I deed the property to you.
Some may call it a fraud but it is legal.
ValuQuest Invest specializes in real estate investments and solutions for difficult real estate situations. We buy homes, pay fast cash, sell your home fast, EDwardsville, Glen Carbon, Maryville, Granite City, Collinsville, Troy, Belleville, Shiloh, O’fallon Illinois, St Louis Metro East