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The benefits of Seller / Owner Financing
Seller financing is a method of making a real estate purchase with little or no money down. This is one of the most commonly used strategies for creatively financing a real estate purchase. Knowing how to put this to work for you can help you execute more deals at a higher rate of speed while spending less, which means that whether you are looking for a primary residence or investment property, seller financing can work well. For sellers who have an existing mortgage in place, things can get a little tricky, depending on the bank, but with a corporation like Amansad Financial on your side, you can negotiate the potentially treacherous pathways of paperwork.
Seller Financing With Existing Mortgage
There are quite a few different reasons why seller financing is a great idea. If you’re a buyer, you don’t have to go through the byzantine process of qualifying for a mortgage through a bank or other traditional lender. If you’re the seller, and if you don’t need the money out of your existing home sale right away, you can turn your home into a reliable stream of income, with payments coming each week. However, there is one reason why more sellers who don’t need the money right away don’t use seller financing, and that reason is the “due on sale clause.”
The “due on sale clause” appears in just about every mortgage that a bank issues. If you sign a contract with this clause in it, you can’t sell the house legally without the bank having the ability to come to you and claim the amount of the remaining principal immediately. This means that if you sell your house to someone else while you still have a mortgage on it, the bank holding that mortgage has the right to come to you and ask for all of the rest of the money due. If you don’t pay them back, they can initiate foreclosure proceedings.
While the clause is present, and while it gives the bank the right to ask for all of its money, it does not mean that the bank has to do it, though. In some cases, the lender doesn’t find out. In other cases, the lender does not have a problem with it. However, those cases are rare (particularly those cases where the lender is willing to wait after finding out). The risk of this sort of cause is a high one. So how can you use seller financing with an existing mortgage without running into a demand for immediate payment?
The risk of this home isn’t just limited to the seller, though. If you buy a home from someone who has an existing mortgage, and they offer seller financing but can’t pay off the rest of their mortgage right away, their lender can foreclose on them. You, as the buyer, have no remedy. This is not a situation that you want.
So how can you get around the clause? The easiest answer is to look for properties that do not have an existing mortgage. That way, there’s no way that either buyer or seller can run into a potentially disastrous situation.
Owner Financing Homes with Existing Mortgage
However, there are also several other options, all of which Amansad Financial can provide assistance with. One of the more popular is to find a private lender to come in and satisfy the mortgage. That way, the seller now has a new mortgage, but with the private lender, and the buyer pays the seller mortgage payments. Private lending usually comes with terms no longer than two or three years, so the seller needs to be ready to pay that loan off within that time frame, because he will no longer have the property. Some private lenders are reluctant because the house does not serve as the collateral in this scenario, but if the seller has other property to put up to guarantee the loan, this is a workable solution.
If you are looking at a particular property and want to use seller financing to execute the deal, but there is an existing mortgage on the property, give one of our mortgage experts at Amansad Financial a call today. We have relationships with many private lenders who are looking to make money on creative real estate deals, and we have walked many other clients through similar situations. Let us help you get that property you deserve.