What is owner financing or seller financing?

Asked by Yvette Johnson, Philadelphia, PA Tue Aug 30, 2011

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Michael Solo…, Agent, Huntingdon Valley, PA
Thu Sep 1, 2011
Seller financing is when the seller holds some or all of the mortgage for the buyer instead of a lender.Basically instead of paying a mortgage company every month the new buyer will pay the sellr every month.Any questions feel free to call me


Michael Solomon
Realty Mark
215 376 4444 office
215 421 2121 cell
0 votes
Charles Bald…, Agent, Philadelphia, PA
Tue Aug 30, 2011
Hello Yvette,

Seller Financing is when the present owner has substantial equity in the property and will use it to act as the bank to fund you purchase.

You would give the owner a Mortgage and the owner would provide the funds to you in the form of a 'Note. The mortgage is called 'purchase-money-mortgage' and the terms are detailed in the same manner as a typical lender.

Seller can often agree to attractive loan terms that also benefit the buyer.

Often the title company for the buyer would provide the 'Mortgage' and 'Note' docs which are drafted to structure the terms agreed to by both parties.

Please be aware that a commercial lender or bank will not in this economy provide a 'First Mortgage' if they know that the seller is also providing funds with a second mortgage for the value of the initial deposit money.

If you require additional information pleases feel free to contact me to discuss your particular situation.

Charles Balducci, 215.531.2000
charlesbalducci@me.com
Coldwell Banker Preferred (Rittenhouse)
0 votes
Don Tepper, Agent, Burke, VA
Tue Aug 30, 2011
It's when the seller--the owner--acts as the bank.

Example: Seller A wants to sell his property. Generally (though not always) the seller needs to own the property free and clear. Buyer B comes along and wants to buy. However, for some reason Buyer B can't or doesn't want to get a mortgage from a bank. Maybe Buyer B's credit isn't good enough. Or maybe Buyer B doesn't like banks.

In this case, Seller A says: "You don't have to go to a bank and get a mortgage. Here's what I'll do. You make payments to me, instead. I'll transfer the deed over to you, just as if you'd used a bank. But you'll pay me, not the bank." Seller A and Buyer B work out the terms--how long the loan is for, how much the loan is for, and what the interest rate is. They go to a lawyer to finalize everything. And from that point on, Buyer B owns the house and is making payments to Seller A. If Buyer B stops paying, then Seller A--just like a bank--can foreclose.

If you're the seller, there are a number of similar arrangements that can protect you better--contract for deed, for instance. A lawyer can advise you on what your best choices are.

Hope that helps.
0 votes
George Chava…, Agent, Philadelphia, PA
Tue Aug 30, 2011
There are pluses but it usually means you have an unqualified Buyer. You act as the lender. If you want to act like a bank, do it. If not don't. If you have representation, talk to your listing agent. If not, feel free to contact me. 215-620-3798.
0 votes
Philip J. Cu…, Agent, Feasterville, PA
Tue Aug 30, 2011
Owner or Seller financing is the Seller Gives the loan to the homebuyer instead of the bank. This can only be done if the Owner doesn't owe anything on the house.It is important that a Real Estate law firm do all paper work so that all parties are protected. If I can be of any help please call me.
Philip J. Cunningham Sr
VIP Realty Corp
215-725-5700 X49
Web Reference:  http://www.GreatPaRE.com
0 votes
Sandy Pitchf…, Agent, Jupiter, FL
Tue Aug 30, 2011
For the majority of the past 10 years banks have been giving home loans to anyone with a paycheck but in light of the recent economic downturn alternate types of financing are now needed. Many have probably heard the term owner financing but may not know exactly what it means and now there is a new term cropping up...seller financing and few have ever heard of this type of financing and even fewer understand what the term means. Let me clarify. In both cases you have a home owner that wants to sell their property. With owner financing the owner is willing to sell you the house and act as the bank for a period of time until you can refinance or pay the loan off. Since banks were the dominate lenders in recent history the term owner financing came to mean that the loan was coming from an owner/investor. Up until the beginning of 2011 most Realtors were not fans of owner financing but since the tax credit ended and mortgage loans are harder to come by many realtors are realizing owner financing is an option for helping their sellers. Since the term owner financing evolved in the economic climate of the last decade the term seller financing is now being used to describe a home sold without the traditional bank loan.
0 votes
Ron Thomas, Agent, Fresno, CA
Tue Aug 30, 2011
If the Seller (Owner) has substantial Equity in the Property, then they can carry that for the Buyer:

In the extreme; if the Seller owns the property, outright, then they can do anything they want, a Bank does not have to be involved at all.

If you have such a situation, you can sign a NOTE with the Seller, putting down anything they want, or nothing. You can set any Interest Rate, etc.

Please involve a Realtor to protect your interests.

Good luck and may God bless
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