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What is seller financing?

Seller financing, owner financing and land contract are exactly the same thing. Seller financing is where the owner or seller carries the loan for the purchaser. The seller sets a price on his home, and then agrees to carry the loan for a prescribed period, usually from 20 to 30 years. Read more about the advantages and pitfalls of seller financing.

Owner-financed homes

Owner-financed homes are on the rise, with the market having a huge amount of homes available. Seller financing is a creative financing measure to help you to sell your home quickly and receive a premium price for your home. One woman in the UK was able to sell her home with seller financing and move to a larger five-bedroom home that she had on contract to purchase. How can you receive full value for your home and get a higher interest rate than banks are charging? Seller financing will allow you to have your cake and eat it too. Homes sold with seller financing will bring in the full price offer, and sellers normally can charge 1/2 to 1% higher interest rate for this service. The buyer saves the closing costs charged by most banks, which may cost around 6% of the loan value. This savings is an incentive for the buyer to pay a slightly higher cost for the home and to have a home that they can call their own. With seller financing, the seller cannot require the buyer to refinance ever. The terms are agreed upon in the beginning and are never subject to change. Pitfalls of seller financing The major pitfall of seller financing is that it goes against the original loan agreement, requiring the owner not to transfer or convey the property without lender approval. Should the bank find out that this has been done, they have a right to call the loan due. The insurance policy must remain in the seller's name, so as not to call attention to a transfer of title.

Opening escrow and closing the deal

Once you've agreed on a price and the terms of the sale, you must go to escrow and have escrow instructions drawn up. The escrow instructions will state exactly what your sales contract states. The contract will list your contingencies and requirements for both sides, like the right to evict the buyer if he fails to make timely payments. An escrow can close in as little as seven days with seller financing. Normally, the buyer will make payments to a savings account set up by the escrow company. The escrow company pays the seller his portion and keeps their fees. The buyer does have a right to refinance if desired.

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