By securing seller financing, you can get a loan from the homeowner rather than a traditional bank. Here’s how to find properties offering seller financing, put together an offer, and close with the proper loan documents.

Step 1 – Decide what type of seller financing you need.

There are several types of seller financing available – the type you choose depends on your financial needs. Wraparound mortgages allow the seller to keep his original bank loan while charging you a down payment and monthly mortgage bill. You work directly with the seller and don’t need to qualify with a bank. Seller carryback loans are a form of second mortgage that can help you take out a smaller loan from the bank. Generally, these loans fund a percentage of the purchase price (i.e. 20%) while the bank funds the rest. Complete seller financing is available when the seller is the full owner of the property and has the ability to set whatever terms he chooses. The elusive “assumable mortgage” is offered when a desperate seller just wants someone to take over the payments on his current loan.

Step 2 – Gather your financial records.

Homeowners offering seller financing generally do not require the same stringent financial background checks as banks. However, showing a history of financial responsibility can put them at ease and persuade them of your trustworthiness. Before approaching any seller, gather your financial records. Paystubs, bank statements, and pre-qualification letters from traditional lenders are all useful. If you can improve your credit score by clearing up delinquencies or decreasing your debt ratio, take the time to do so. Remember: there are no set qualification standards for seller financed purchases. However, looking good on paper can score you a better deal.

Step 2 – Search for seller financed properties.

Finding seller financed properties can be a challenge. Start with an agent who specializes in seller financing or search for-sale-by-owner homes yourself. Several websites offer listings of seller financed properties – but, there is no major site providing all possibilities. For places to look and search strategies, see: Where to Find Seller Financed Properties for Sale.

Step 3 – Make a seller financing offer.

After you’ve chosen a home with seller financing, it’s time to put together an offer. Speak with the seller beforehand to understand what financing he can provide and what terms he prefers. Some sellers have a strict set of possibilities, while others are more open to negotiating. The type of seller financing you can get will depend on the homeowner’s own mortgage. Many mortgages have a “due-on-sale” clause that makes it difficult for the seller to keep a mortgage in place while transferring the title to a new buyer. After negotiating basic financing with the seller, put together an offer letter with your agent. You will need to complete a purchase agreement and make an earnest money deposit.

Step 4 – Close the deal.

Closing on a seller financed home is generally similar to the traditional closing process. If the title of the property is being transferred to you, a title company should make sure it is clear. You may also want to purchase title insurance to protect yourself against any possible claims on the home. At closing you will sign paperwork such as the mortgage (deed of trust), financing note, a HUD-1 statement, and a Truth in Lending Statement. Once the paperwork is signed and the finances clear, you are given the keys to your new home.

Step 5 – Make your monthly payments.

Every month, you’ll send a mortgage payment to the person / company indicated on your closing documents. You may be asked to send payments directly to the seller. Or, you may pay through an intermediary servicing company. Don’t forget to make your payments – if you default on a seller financed home, the seller can force foreclosure proceedings. If your home is foreclosed upon, you will not be reimbursed for any mortgage payments you’ve already made.