Is A Seller-Financed Mortgage Right For You?

by Jackie Davis 09/27/2020

Photo by Charles Thompson via Pixabay

A vast majority of homebuying  transactions rely on the buyer qualifying for a mortgage through a bank. After all, most people don't have enough cash lying around to buy a home outright. Nowadays, you have more options with different types of lenders and alternative financing companies where you can seek pre-approval online. But sometimes even these options don't work out, as pre-approval doesn't mean you're actually going to get the underwriter at the lender to approve you.

This could make you consider other alternative options like seller-financed mortgages.

What is a Seller-Financed Mortgage and How Does It Work?

As the name implies, you are financing your purchase with the person or company selling the home instead of taking out a mortgage with a lender. It's a private transaction where you, the buyer, make an arrangement with the seller to buy the property.

The seller draws up a promissory note that details the terms of the mortgage: interest rate, payment schedule, and the consequences if you default on the mortgage. In most cases, the seller then finances the sale for a short term, usually five years, with a balloon payment at the end of the period. However, the promissory note can be sold at any time to another financing company: sellers don't necessarily need to wait for the buyer to refinance with a more traditional lender.

Why Would I Consider a Seller-Financed Mortgage?

There are situations that make it difficult to work with a traditional lender, such as:

  • Self-employment / entrepreneurship
  • Foreign employment
  • Frequent job changes, or you haven't held the same job long enough
  • Poor or no credit
  • Tax-related issues
  • Debt-income ratio is too high

Sometimes, these situations can be incredibly frustrating when you know you'd be able to afford the mortgage payment or it's even far less than market rent where you want to buy! Alternative lenders may have options but sometimes even they don't want to lend to the self-employed or borrowers with high student loan or credit card debt.

This makes seller financing a more viable option when you can demonstrate your ability to make payments but are having trouble with the traditional channels.

What are the Key Pros and Cons of Seller-Financed Mortgages?

The down payment, interest rate, and other terms are more flexible although they may not necessarily be better than what you would get with a bank. There are also no points, PMI, or origination fees which can save money upfront and over the life of the loan.

Closing is also much faster, easier, and cheaper because there's no loan officer or underwriter involved. 

However, the seller may not always confirm they're able to finance the sale. If the seller has a mortgage, most of them have a due on sale clause that forbids them from selling the home without paying off their mortgage balance first. If the seller still does this without paying off the mortgage first, your new home could get foreclosed on.

The homebuying process can be a difficult undertaking, but we're here to help you find the best options so you can buy your dream home as quickly as possible. Reach out today to learn more!

About the Author
Author

Jackie Davis

Welcome to Jackie Davis and Company. If you have navigated this far, we thank you and would like to share how we differ from other teams and agents. We work tirelessly and are committed to providing 100% customer satisfaction. We recognize, listen, value, and appreciate your goals as you move towards listing or selling your home. As Listing Agents we continuously integrate new and advanced technology to promote your biggest asset. Our strong negotiation skills are invaluable for getting you the best price for your home. As the Buyer's Agent we pride ourselves on being fully educated in our local markets. While focusing on integrity and honesty we will provide you with the highest level of professionalism and analysis. We are proud that this hard work has earned us recognition as top 1% both company and state wide in the industry. Achievements * 1st Quarter 2017 Leading Sales in Fairfield * 2017 February Leading Sales Team * 2017 March Leading Sales Team * Chairman's Elite representing the Top 1% Agent at William Raveis Nationwide & Fairfield County * Over $45 million Listed & Sold in 2016 * Over $30 million Listed & Sold in 2015 * 99% List to Sales Ratio (higher than market average) * 75 Average Days on Market (less than market average) * Jackie Davis Promoted to Sales Vice President 2016 * Raveis Award of Excellence every year * Exceptional Customer Service Award every year * Top Units Sold Team October 2016 * Top Customer Service October 2016 * Top Mortgage Support September 2016 * Top Selling Team January 2016 * Top Mortgage Support August 2015 * Top Selling Team Feb 2014 * Top Producing Team Jan 2014 * Top Selling Team Dec 2013 * Top Selling Team Nov 2013 * Top Producing Team Nov 2013 Professional Specialty Innovative Marketing and Technology equals proven sales. Our team of licensed professionals is ready to serve. We handle: Sellers & Buyers Exceptional Properties Investors Waterfront & Beach Area Homes Country & Equestrian Properties New Construction & Land Relocation Professional Association National Association of Realtors Connecticut Association of Realtors Greater Fairfield Board of Realtors Consolidated Multiple Listing Service Community Involvement PTA committee member for past 14 years from elementary through high school PTA Board Member for 4 years Shoff Darby Advisory Scholarship Board member past 5 years Committee member for Cancer Care of Norwalk past 10 years Volunteer Habitat for Humanity Operation Hope coordinator for elementary and middle schools, last 3 years Volunteer for a variety of town sports teams, that my daughters participate in The County Assemblies Board Member The b-Cause Foundation Board Member- a non-profit organization whose mission is to educate children to recognize neighbors in need in our local community. Wakeman Boys & Girls Club- Fundraising Committee Member Committee Member for Cancer Couch Fundraiser the Cancer Beat 2016 Near and Far Aid Volunteer Education BA from Merrimack College Personal Fairfield resident for 39 years Currently reside in Fairfield Beach Area Married 27 years Four daughters currently in & have graduated Fairfield Public School system Areas Covered Fairfield Southport Westport Weston Norwalk Trumbull Easton Stratford Shelton Milford Stamford Bridgeport