This article not prepared by City Weekly Staff
There are a lot of folks out there who want to buy a home or condo but can’t qualify for a loan. They are self-employed people who report little on their taxes, are recovering from a past event that screwed up their credit (bankruptcy, short sale, foreclosure, etc.), have fluctuating income ($45,000 last year but $75,000 this year) or are just 50 points from a decent credit score. But they are potential buyers who have cash in the bank—as in 20 percent or more to use as a down payment.
You can buy if you can find a seller to become your bank. This is a way to purchase via something called seller financing or “buying on contract” and it’s happening more and more these days. Lenders have made it harder for individuals to get loans, but having cash in the bank and a good story/proof to back up your income/credit history to a potential seller might get you into a house in a week. You get to bypass the lender B.S., too (sorry Julie).
Each seller financing scenario is different, but here’s a working example:
1. Bob owed $200,000 on his home worth $250,000. His payments are $1,500 a month.
2. Pat and Carey want to buy it but can’t get a loan for another year and a half due to a past bankruptcy. They have stellar credit and $40,000 in the bank.
3. Pat and Carey offer $250,000 with $40,000 down. They will pay Bob $1700 a month for 3 years until they can refinance the home once their credit is back to normal.
Yeah, everyone is happy, the buyers buy and the seller sells! This type of transactions brings up many questions, so here’s some more information.
Q: Who gets the interest deduction each year for their taxes? A: The buyers.
Q: Who holds title to the property after the sale? A: It can be done two ways—either the deed will be transferred to the buyers or the seller will keep it in his name.
Q: If Bob transfers the deed to the buyers and the buyers don’t make payments after a while, how does Bob get his house back? A: He would have to foreclose on them.
Q: What if the buyers can’t refinance the home within three years because the economy got worse? A: They could all agree to a clause that they would sit down and re-negotiate the contract before the three years is up.
There are a many other questions when it comes to seller-financing options, whether you’re a buyer or a seller. What I can say is that during my almost 30 years in business, I’ve never seen a buyer with 20 percent down screw up a contract. That’s a huge investment and that buyer is serious. I also know that it may be the only way a seller can sell their property in this economy, as the seller may owe about what the property is worth at the moment. Got questions? Talk to your attorney, or call me and we’ll do coffee! n
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