Creative Real Estate Financing Solutions — Seller Financing
Knowing how to effectively use seller financing in your business can help you get more deals done faster and for less money
This is how it sounds; it’s where’s the seller provides the financing
- Legal ownership changes but the payment are sent directly to the previous owner for a specific duration and with a defined monthly payment
If you’re unable to get traditional A-grade financing, you can approach the seller and see if they are ready to finance the deal. The main requirement is if the seller owns their property completely and fully. This is because the due-on-sale clause can cause issues if the property is still in-lien with a bank. The good news is that 1/3rd of Americans (we’re going to assume the stats are roughly the same for Canada) do not have a mortgage on their property.
The Problem With Seller Financing:
Same as the lease-option financing strategy; the due-on-sale clause, allows the bank the right to demand that the loan be paid back in full immediately if the property is sold.
If you can’t pay it back in full with the bank demands it, the property will be foreclosed on.
So don’t buy a property with seller financing if there is a due-on-sale clause.
only use seller financing when the seller owns the home free and clear, and the banks aren’t involved.
Why Buy Using Seller Financing:
Ease of Financing -> you can skip the banks, especially if you are tapped out on the number of mortgages you can get
Possible No or Low Down Payments -> the down payment is negotiable between you and the seller and there are no 20% requirements, etc, etc
Option for Creativity in Structuring the Deal -> can turn a mediocre deal into a great deal, because rates, terms, payment amount, and payment dates are ALL negotiable
Purchase Unfinanceable Properties -> if the condition of a property, which can especially be the case for flips, is too negligible for A-grade financing, this is a great alternative