The San Francisco Chronicle reports:

“CAR’s offer is essentially like insurance for people who get laid off. It applies to first-time home buyers who open escrow starting today and close before Dec. 31. They must use a California Realtor in the transaction, not be self-employed and be younger than 70. If qualifying people are downsized, they may receive up to $1,500 a month for up to six months to help make mortgage payments.”

It’s certainly an interesting idea. However, people who worry about job security may not want to commit to a mortgage right now – even with such an incentive.

Technically, this deal should work with seller financing purchases, assuming that a Realtor is involved.

photo credit: TheTruthAbout…

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Seller Financing Guide

In the current market, most sellers expect that buyers looking for financing will bring less cash to the table than required for a conventional loan. However, they are also concerned that a buyer without any financial stake in the property will bail if the value of the home continues to decrease.

Smart Money reports:

” In today’s market many banks have returned to asking for 20 percent down; offer less and you’ll probably have to pay for private mortgage insuranc, which adds up to half a percentage point to the loan. In seller financing, the buyer can put down less than 20 percent — without the PMI. Still, says real estate attorney Jon Goodman, of Boulder, Colo., “the buyer needs to have skin in the game — the more, the better.” Homeowners will typically want a down payment of at least 10 percent as protection against default.”

If you know where to look, it is possible to take over payments with nothing down. However, in most of these cases you’ll be asked pay more for the property than it’s current value.

See Also:

Seller Financing Guide

Seller Financing Step-by-Step

WalletPop explains:

“Only sellers in strong financial positions will be able to offer you a loan to buy their homes. People who need cash now won’t be able to work with you on financing, and that eliminates short sales, foreclosures and otherwise distressed home owners from the mix. Families who are “trading up” to bigger homes also won’t be able to help because they need the cash for their new place. Eliminating all those categories of people eliminates a huge chunk of the available housing stock — and especially eliminates the distressed sellers who will offer the best bargains.”

On the other hand: if you don’t qualify for a traditional loan, seller financing increases the number of properties you can consider from zero to hundreds (or even thousands). It’s clearly not for everyone, but many potential homeowners with poor credit histories, self-employment records, or other issues have benefited from seller financing opportunities.

See Also:

Seller Financing Guide

Answers to Common Seller Financing Questions

In essence: A seller carry back mortgage allows a buyer to take out a small loan from the seller in addition to his primary loan from a bank. In this way, buyers are able to avoid pricey PMI (mortgage insurance) payments to the traditional lender and compensate for having a down payment less than 20%.

To learn more, see: The Seller Carry Back Mortgage

San Francisco Gate’s On the Block blog explains:

“The appeal of seller financing is understandable — the buyer doesn’t have to jump through hoops to get a mortgage from a traditional bank. The seller, meanwhile, benefits as he/she may be able to spread the net gain on the sale over a number of years, thus softening the tax blow.

It’s not clear that buyers are biting, but sellers are certainly offering financing with a vengeance. Roughly 80 Bay Area listings use the term “seller financing” on Craigslist…”

Many of these seller financing proposals are bound to fail because of “due-on-sale” clauses on the sellers’ loans. However, buyers can still find plenty of legitimate seller financing deals in today’s market.

See Also:

Seller Financing Guide

Seller Financing Laws

When done correctly, seller financing can benefit both parties. However, buyers should reconsider deals with sellers that are already facing foreclosure and make sure that there is transparency in any deal.

Tom Resnick of the Daily Herald explains:

“I would…suggest proceeding with caution and installing safeguards for your protection. The fact that your owner is in a foreclosure situation indicates that he or she has severe financial problems. It is very dangerous to enter into [seller financing] agreements and then start depositing large checks with an owner in foreclosure. The owner could be in such terrible financial shape that he or she could take your checks and rather than keep the mortgage current, use the funds for other purposes.”

If you decide to go ahead with a seller in foreclosure, make sure to talk to a qualified real estate attorney about your seller financing deal and get everything in writing.

photo credit: the.urbanophile

See Also:

Seller Financing Guide

Seller Financing Step-by-Step

MSNBC reports:

“The National Association of Realtors said Wednesday that sales of existing homes fell 5.3 percent to an annual rate of 4.49 million last month, from 4.74 million in December. It was the weakest showing since July 1997, and some analysts don’t see sales bottoming out until later this year as prices continue to sink. Sales had been expected to rise to an annual pace of 4.79 million homes, according to Thomson Reuters.”

Creative financing strategies such as loans provided by the seller make it possible for people who don’t qualify with a bank to purchase a home. Offering such incentives can be risky for the seller – you certainly don’t want to offer financing to someone who won’t pay you back. But, in today’s market there are a lot of lower-risk buyers who still can’t qualify due to self employment or a shorter work history.

See Also:

Seller Financing Info

Peer-to-Peer Lending Essentials

So, here’s an unusual story. Several years ago a Missouri family purchased a cave using partial seller financing and turned it into their home. Now that the economy has turned everything upside-down, they’re looking to sell.

cnet reports:

“The cave cost $160,000, of which the Sleepers put down half. The other half they borrowed from the people who sold them the cave. (No, they were not called the Crusoes or the Robinsons from Switzerland.) It was a five-year loan with one so-called balloon payment at the end, which would be this May…

Sadly, with the banks in a self-induced coma of convenience, the Sleepers are unable to refinance. Mr. Sleeper, a computer consultant, told ABC News: “Right now, banks are not interested in anything odd.” There is, indeed, nothing odd about taking taxpayers’ money to cover for decisions made in large echoing heads.”

Creative financing helped them purchase the cave turned house. But, taking out a traditional mortgage is difficult for everyone right now – not to mention people in such uncommon circumstances. Perhaps with the media attention they’re beginning to attract, the family will be able to find an alternative to a quick sale.

(The photo accompanying this story is of a “generic” cave. But, be sure to check out the family’s Ning page. They have some pretty amazing pictures of what they’ve done with the place).

photo credit: JacobEnos

See Also:

Seller Financing Guide

The Seller Financing Process

A few years ago, I spoke with a man who made a living with lease to own properties. Basically, the process went like this: he bought a run-down property at a low price and fixed it up. He then advertised it as lease to own, in order to attract families who dreamed of home ownership but couldn’t quite make the cut. Upfront, they paid him an “option fee” that would be credited to the sale price. Each month they paid him him rent + an extra amount towards the purchase price.

Generally, at the end of the term, the people living in the home were unable to purchase it. So, the seller made out way better than a traditional landlord dealing with renters. In addition to rent, he got to keep all the money they gave him in fees towards the purchase price. As a part of pretty much any lease to own deals, these monthly payments are never refunded if the person living in the home does not buy the property by the specified date.

The biggest downfall of lease to own programs is that, unlike straight forward sales, the money you put towards the house may be going to nothing.

In the cases where buyers are satisfied with these deals, they usually do the following:

1. They know exactly why they cannot qualify for a traditional loan and work on fixing that problem as soon as possible (i.e. they pay off the balances on their credit cards in order to increase their FICO score).

2. They work with a landlord who is basically honest and offers them relatively generous terms (i.e. only a small monthly fee to be applied towards the principle, enough time to fix their qualifying problems).

3. They buy the house when time is up. Obviously this is the single most important denominator.

If all three don’t occur, you’re much better off renting. Pay less each month and save the extra money in the bank until you can take out a regular loan.

Alternatively, you could enter into another, more straightforward, type of seller financing that limits your risk of losing the property and your money. Many homeowners are so desperate to sell right now they are willing to offer seller financing with little / no down payment. In some cases, you may be able to just take over their monthly mortgage bills.

Here are a few of the most common types of seller financing:

Assumable Mortgages

Wraparound Mortgages

Seller Carry Back Mortgages

Private Party Mortgages

One way to score sales is to offer help to people who cannot necessarily qualify for traditional loans and need seller financing. For agents who are willing to wade through often confusing deals, the rewards can be worth it.

Real estate writer Broderick Perkins from Examiner.com reports:

“Tight mortgage money makes seller-financing, not a silver bullet to shoot down stiff underwriting standards, but an option to consider in a tight mortgage market…

Only a fraction of sellers are willing to take on the role of financier, but that fraction is likely larger than it was a few years ago when lenders had plenty money to lend.

That’s because today’s home buyers are having a tough time finding mortgage money and sellers are having a tough time finding buyers.”

Seller financing has quite a few drawbacks. But, when deals go smoothly, it can be a smart decision for all parties involved: the buyer, the seller, and the agent.

See Also:

Seller Financing Guide

Seller Financing Risks

Common Seller Financing Questions