At Amansad Financial, we hear from frustrated people every week who want to qualify for a mortgage through a bank and simply can’t. Even though they have saved up a down payment for as much as a third of the purchase price, they’ve run into difficulties with their credit score because of an expensive divorce with an unstable individual, a lengthy illness that kept them from working (and from paying their bills on time) or some other financial reversal, but they have the assets in place to put down a substantial down payment and the sort of income that will allow them to pay their mortgage each month without difficulty. Because they are still waiting for their credit scores to recover, though, they can’t get a bank to deal with them.
Buying Seller Financed Home
For some people, private lending is the answer. There are individuals and companies out there that are looking to invest money in the real estate market, but they don’t want the 3 percent that some banks are extending to homebuyers. So they are willing to take on the slightly higher risk of lending to people who cannot gain approval through banks but have still socked away 25 to 30 percent as a down payment. The terms of these loans are usually short (a couple years at most), but they give people time to improve their credit score so that they can refinance with a bank.
Homes For Sale With Owner Financing
Another way to get financing for a home is to have the seller finance it. This is honestly a fairly rare scenario, because most people who are selling a home need the proceeds right away. They probably need it to put down on a new home or to invest elsewhere. However, for people who have already paid the home off or who have significant assets elsewhere, the possibility of treating the sale of the home as an investment over the long term instead of an immediate infusion of cash is an attractive one. This sort of arrangement is referred to as “owner financing.”
In this scenario, the seller agrees to be the “bank.” You’ll make the down payment directly to the seller, and then you’ll start paying for the house each month, sending your mortgage payments to the seller. With a bank, the longest you can sign a mortgage for is 10 years, but if you have a private arrangement with the seller, you can discuss whatever terms you want. This means that you might not have to renew the loan or apply for new financing at other points during the amortization period, as long as the seller is willing to allow you to be on a note with him or her for the entire life of the balance of the loan.
Obviously, if you’re a buyer with poor credit, this is a way for you to get into the house you want as the owner, rather than a tenant (or not at all). Your name goes on the deed, just as it would if a bank were performing the financing. You don’t have a free and clear title, but you wouldn’t if you were dealing with the bank either. You will want to have an attorney go through the paperwork with you, because if you fall behind on your payments, you run the risk of foreclosure. Large banks typically move fairly slowly when it comes to foreclosure proceedings, because they have so many loans out that they don’t have time to focus on you until you fall particularly far behind, and so it is often simple to get a bank to agree to modifications or extensions. The seller, though, may only have one loan out — the one to you. That means that if you fall behind, he has plenty of motivation and time to move swiftly toward foreclosure. So communication is key in a situation like this.
For the seller, this is a chance to turn the house into the equivalent of a really high-interest certificate of deposit. If you agree to a rate of 7 percent, then that’s the return the homeowner is getting on his property. Obviously, over time you will be able to pay the note off, but this is a fairly secure long-term investment for the seller as well. Seller financing isn’t for everyone, but if it is something that works with your situation, Amansad Financial has connections with individuals who are looking to sell homes with this sort of arrangement.