Pretty much anything is possible with seller financing. Someone who owns his or her property free and clear does not need any sale proceeds to pay off his or her mortgage. He or she might be willing to give you 100% financing. Others might want a down payment in some percentage, just like a bank or mortgage company. Many times a seller will agree to hold a second mortgage on the property for a short period of time. You obtain regular mortgage money. Instead of making a down payment for the balance due to the seller, you make monthly payments for three to five years. At the end, you refinance everything with a traditional lender and pay off the seller.
Some gurus will tell you it is okay if you do not tell the lender about the sale. They say that a technical reading of the documents shows that no one has any obligation to tell the lender when property is sold. Some say that if you disguise the transaction as a lease or a lease-option, you can avoid the due on sale clause. Others disagree, saying that if the substance of the transaction is a sale, then the first mortgage must be paid in full at the time of the sale. I think that any buyer or seller who does a wrap when the first mortgage has a due on sale clause is asking for trouble. Approach this type of seller financing with caution.
A big problem with wraparound mortgages is caused by the possibility of bad tax consequences to both parties. The rule is pretty technical, there are loopholes, and there are landmines inside some things that look like loopholes. Beware! In a nutshell, sellers may have to declare all gain as income in the year of the sale and pay income taxes, instead of spreading it out over the lifetime of the wrap as they receive their money. Buyers may not be able to deduct wraparound mortgage interest payments on their taxes. Seek professional advice before doing a wrap, and be sure to ask your advisor about these specific issues. Many attorneys and accountants are not aware of the potential problems.
Sellers agree to hold financing because it is economically beneficial for them. Keep this thought always in mind. You will not be bashful about asking for seller financing and you will not be scared to offer seller financing on your own sales because you will know it is a win-win situation. Some sellers cannot afford to be your lender. If a seller needs the equity in his or her home in order to finance the purchase of another home, then he or she is not going to be a prospect for you. For the rest, remember that a seller who receives a large chunk of cash has a problem. He or she must find a safe investment for that money with attractive earnings.
Bank certificates of deposit are very safe but earn very low interest rates. The stock market might be much better but has much higher risk. Many sellers would be eager to earn the same interest rate as mortgage lenders, or even a little bit less. They already know the property they are selling to you and are confident it will hold its value as collateral. It is quirky, but many sellers will hold the financing if you will agree to their above-market price for the property. You might not care about the higher price if your money can work out the same.
Our website is not responsible for the information contained by this article. Webworldarticles.com is a free articles resource thus practically any visitor can submit an article. However if you notice any copyrighted material, please contact us and we will remove the article(s) in discussion right away.
This article was sent to us by:
Jack E. Rogers at
07042010
1. Start Investing Money in Real Estate
All articles in this directory are property of their respective authors. Additionally, read our Privacy Policy
© 2010 WebWorldarticles.com - All Rights Reserved.