Recently, a buyer client was interested in a listing in which the owner was advertising seller financing. My client wasn’t familiar with seller financing, so I explained it to him, and I later decided to write a blog post on the topic. Seller financing is most common in tight credit markets when it’s difficult for buyers to obtain loans. As a buyer in today’s market, you’ll probably encounter it in less than 10% of real estate transactions.
In seller financing, the seller becomes the lender in the transaction, and instead of signing a promissory note with a lending institution, you sign one with the seller. Everything is negotiable, including the interest rate, down payment, sale price, etc. Often, a buyer and seller will agree on a standard 30-year fixed rate loan, but one that includes a balloon payment due in five years. What this means is that your monthly payments are the same as if you had a standard, 30-year fixed rate loan, but five years into the loan, you owe the seller whatever unpaid balance remains on the loan (a balloon payment). In actuality, most people don’t actually make that payment. Sometime in the first five years of the loan, you apply for a loan from a bank or other conventional lender and they pay off what you owe and give you a new loan. Seller financing can be ideal for a buyer who is having a difficult time qualifying for a bank loan.
My client ended up not writing an offer on the listing that advertised seller financing, but it’s still useful for me to outline how the financing on this property would have worked if he had moved forward with the purchase. With this particular listing, the seller was taking everything a step further and offering 100% seller financing. Basically, the seller wanted a buyer to offer full price for the property and was willing to pay for the buyer’s closing costs. The seller didn’t require a down payment, and was willing to offer a two-year, interest only loan for the entire purchase price of the property. The buyers would make 6% interest-only payments every month, meaning that they wouldn’t make any monthly payments on the loan’s principal. At the end of the two years, the buyers would owe the entire principal amount. Like I mentioned above, the idea was that by the time the balloon payment was due, the buyer would have refinanced with another lender and gotten a new loan.
If you’d like to learn more about seller financing, call me at 703-462-0700 or send me an email: darren@darrenrobertsonhomes.com. If you’re in the market for a home in Northern Virginia, contact me so I can help you find the right property. As you can tell, I make every effort to keep my clients informed on a wide variety of topics, including their financing options. I’m an expert with contracts and a skilled negotiator who will work hard to get you the best deal possible.
If you’re considering selling your home in Northern Virginia, call me and ask for a no hassle, over-the-phone comparative market analysis of your property. 703-462-0700