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Seller financing

Seller financing

What is Seller Financing?

When you buy a property, it might sometimes make sense to have the seller finance the deal for you. This means that the seller is offering a mortgage to the buyer and the buyer then becomes the borrower. Banks and financial institutions aren't typically involved in this process.

The two parties come together and determine the right interest rate, down payment, and schedule of payment. Then, the borrower signs the agreed upon promissory note and promise to pay the mortgage to the seller.

Considerations of Seller Financing

Seller Financing can make sense for your property investing journey. Here are some of the things investors should think about:

  • Seller Financing can save borrowers money and time. Since the seller is fully financing the loan, many of the costs and friction, that exist in the mortgage process, are gone.
  • The seller can sell the promissory note. As a borrower, the servicer can change. This means the seller you initially got seller financing from may not be the person you're paying years down the line.
  • Seller Financing usually only works in the short term. After a seller finishes selling the property, they want their money. Thus, even if the seller agrees to finance the property, the loan may only be for a few years and terminate with a balloon payment. Having a way to refinance out of the seller financing may be advisable.

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