When is the Right Time to Consider Seller Financing?

Abby Shemesh
July 1, 2016

senior couple

Before we discuss the right time to consider using a seller financed mortgage, let’s review how a seller financed mortgage works. Instead of receiving a home loan from a bank, a credit union, or another type of institutional lender, a home buyer finances the purchase of a home through the home’s seller. Just as traditional lender would do, the seller decides the terms of the sale (down payment, interest rate, payback period, etc.), and then the seller typically agrees to the terms.

The Right Time for Sellers

Arranging a seller financed mortgage requires the seller and buyer to make different considerations based on their respective situations. So, in discussing the right time to consider seller financing, we should look at the equation from both sides. Starting with the seller, below are three situations that indicate using a seller financed mortgage would be a good option.

  1. Need to Sell Home Fast

In terms of timeliness, one of the biggest obstacles to selling a home is the third party financing  that most buyers must use, which can result in a time consuming process for loan approval. First, comes the loan pre-qualification process, then the loan pre-approval process, which is followed by the loan commitment process.

As prospective homebuyers go through the financing process, they often look at other houses in case their first choice falls through their fingers due to financing problems. Using a seller financed mortgage largely eliminates the tedious process of receiving a conventional home loan. If you need to sell your home fast, there’s a good chance that using seller financing would be the most expeditious way to do it.    holiday house

  1. Good Amount of Liquidity

Since buyers who have low credit scores and other financial difficulties often use a seller financed mortgage, it’s always a good idea for the seller to have some money set aside to make payments on his or her new residence apart from the money received from the seller financed mortgage for the previous residence. You can always sell the home again of the buyer defaults. Having money set aside will help you avoid entering unprofitable contracts based on financial need.

  1. Need a High Sale Price

A “high sale price” refers to a price that’s higher than the industry average for the type of home that is sold. Using a seller financed mortgage is a good way to get the buyer to accept a higher than normal price because the buyer often has poor credit and a checkered financial background that prevents him or her from receiving financing through traditional lenders.

The reasoning may seem a bit contrary, but a person who needs to buy a residence and isn’t in the best position to make the purchase due to a low credit score will be motivated to pay you more because their financing options are few. If you need more money from your house than the residence is worth on the fair market, a seller financed mortgage could be the real estate transaction that pays what you need.    


The Right Time for Buyers

There are some situations in which a home seller should optimally consider using seller financing. The same applies to prospective homebuyers. For home buyers, below are three situations in which a seller financed mortgage can be highly beneficial, as long as the seller is flexible enough to liquidate the residence based on financial conditions that are not optimal for a home sale, but are nevertheless conditions that the buyer cannot change.boat house

  1. Low Credit Score

Our credit score impacts our credit-based purchasing power in almost every situation; home-buying is no exception. When homebuyers who have a low credit score apply for a loan at a financial institution, they are frequently denied. If they are accepted, they’re often presented with loans that have astronomical interest rates and high down payments — criteria that make the agreement financially untenable.

Sellers who finance their own mortgage can relax the interest rate and the down payment for the loan to make it financially feasible for the homebuyer. In doing so, they increase the chance that the owner will occupy the property long-term and provide a steady stream of timely mortgage payments.     

  1. Small Down Payment

If you have a low credit score, one problem with receiving a traditional home loan stems from a down payment amount that is likely to be high (say, 20 percent or above). The amount helps offset the financial insecurity that the lender feels is indicated by the low credit score. Since sellers who offer seller financing are typically motivated to sell a property fast, they seldom request a down payment that would be high enough to block the sale of the property for most low credit buyers.  

  1.  Need to Buy Quickly

All sorts of things can suddenly put people in the position of being homebuyers, such as having to switch jobs quickly and moving to a new geographical region, serious damage to the former residence, and the need to be close to an aging relative who convalesces, to name a few. In such cases, a seller financed mortgage may be the best option due to how quickly the agreement can closed when the buyer comes prepared with all of the necessary documents.

How Amerinote Xchange Can Help

Whether you sell your property using a seller financed mortgage is your decision, but if you come to the point of needing to sell the mortgage, Amerinote Xchange would like to examine the note and potentially make you an offer. We are a private buyer of mortgage notes that provides a lump sum payment for every mortgage note we buy in part or in full. To learn your options for selling real estate notes, call us at (800) 698-3650, or use the contact page on our website.