Can seller financing help you buy a nicer house?
PORTLAND, Ore. - You may have seen signs up in your neighborhood about seller financing, but just what is that, and will it help you buy a nicer home or sell your home faster?
You might also have heard seller financing referred to as “owner contract”, “owner carries terms” or “owner willing to carry second mortgage”.
But basically it’s a way for homeowners to act as a private banker and provide a loan to the buyer at an agreed upon interest rate, either for the whole mortgage or just a portion.
In the latter, the second mortgage fills the gap between the sale price and what the buyer can get a traditional bank to approve for a home loan.
From a seller’s perspective, offering private financing can help get a home off the market faster by casting a wider net of people who qualify to buy.
That’s what Dorothy Garcia hopes will happen with her home. She was told that it could mean 30 percent more buyers.
Dorothy is your typical motivated seller. Her husband took his dream job in Southern California. She stayed behind with the kids in Beaverton to help sell their remodeled home, but it sat listed for eight months with no offers.
After considering leasing or renting their home, the couple put it back on the market with seller financing as an option.
“With this I felt it was more of a guarantee and you don’t always know who’s coming into your home, but they put down a payment, you feel like they’ll take care of your home better,” said Dorothy.
A wide range of homes offer seller financing: from modest homes that are priced at $84,000 and $110,000 in Portland, to a 5,500 square foot home in Forest Heights that’s listed at $1.15 million. It’s owned by a family who has already moved out.
“The reason why people are wanting to do seller financing is they can’t afford the mortgage anymore,” said real estate attorney Chris Schwindt, who cautions both buyers and sellers to take precautions to protect themselves legally.
“As a seller, now you’re setting yourself up to be a creditor, a lender basically,” Schwindt said.
That’s not a role many sellers are comfortable with.
Conversely, for buyers, Schwindt recommends proper documentation detailing what the parties are agreeing to, how the payments will be made, and whose paying taxes and insurance on the home.
He said the buyer should still get title insurance just like a traditional home purchase to determine if there are underlying liens on the property such as unpaid taxes, contractor liens or judgments against the owner.
Finally, he recommends using a contract servicing agent, like Guardian, that collects the money and disperses it to the right places like the mortgage, taxes, and then the seller.
“Sometimes buyers want that because they want to know the payments are going where they’re supposed to go, not just in the seller’s pockets, and they’re off in Hawaii or something and can never be found again,” said Schwindt.
Is it for everyone? No. But seller financing helped Emilee and Justin Nisenfeld buy their first home.
For a young family like the Nisenfelds, who had less than ideal credit and a chunk of money from an inheritance, it made sense.
They never dreamed it could be possible to buy a house at such an early stage of life. Justin’s 25 and an out-of-work electrician who watches the couple’s son, Dallas, during the day.
Emilee’s 22 and just got promoted with a local construction company.
“I’m so grateful that I’m not throwing that money away,” Emilee said. “I’ve worked really hard in the career I’ve chosen and to have something to show for that is huge.”
The Nisenfelds got into their home on a two-year contract with the seller at a nine-percent loan that they would be repaying him. At the end of the two years, they have the option to refinance or take out their equity and resell.
As for Dorothy Garcia, her home sold within a month and a half after she listed it with a seller financing option.
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