Seller Financed mortgages have certain features that are sometimes different from those offered by traditional lenders such as banks. It’s important to be aware of these differences and understand how they can impact the value of your mortgage.
Firstly, what is Seller Financing and what are it’s benefits?
In This Article
Key Features of a Typical Seller Financed Mortgage
A typical seller financed mortgage often lacks some of the features commonly found in traditional mortgages. These features may include:
- No appraisal
- No survey
- No credit reports on borrower(s)
- Small or zero down payment
- Borrowers with bad or poor credit
- No proof of borrower employment or income
- Non-standard mortgage and note
- Interest rate may be below market rate for this type of credit risk borrower
- Non-institutional lender
- No government or billion-dollar company guarantee of payment
- Sometimes no title insurance
The above are the TRUE reasons why your mortgage isn’t worth as much (percentage-wise) as one originated by your local bank for sale to Fannie Mae or Freddie Mac.
How to use Seller Financing to Maximize your Profit
Challenges and Considerations of Seller Financing
While seller financed mortgages may have certain limitations, it’s essential to weigh the pros and cons based on your individual situation. Here are some factors to consider:
1. Commission and Bargaining Power with Seller Financing
When opting for a seller financed mortgage, you may have an intermediary such as a broker involved who will receive a commission. While this commission is well-deserved in many cases, it does add an additional cost to your mortgage. Additionally, as an individual borrower, you may not have the same bargaining power as larger institutions like Citibank or Nations Bank.
2. Limited Mortgage Selling Opportunities
For many individuals, the seller financed mortgage they obtain may be the only one they ever sell in their lifetime. This limited experience in the mortgage process can make it easier for others to take advantage of them. It’s crucial to educate yourself and seek professional advice to protect your interests.
3. Bridging the Gap
While some factors may seem insurmountable, it’s important to make your seller financed mortgage as similar as possible to those originated by institutional lenders. This can help increase the value of your mortgage and provide you with more favorable terms.
Consider working with professionals who can guide you through the process, ensure all necessary documentation is in place, and help you negotiate terms that are fair and reasonable.
Remember to seek professional advice, educate yourself on the mortgage process, and take steps to protect your interests throughout the transaction. With the right approach, a seller financed mortgage can provide you with the financing you need while minimizing potential drawbacks.
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