Sometimes mortgages are like keys lost in the inner depths of your purse. You all know what I’m talking about. You get home after a tiring day and all you want to do is enter your house. But, somehow, you can’t fish for your house keys, even after throwing out everything that’s in your bag. You try to shake out every bit of dirt out, but still no keys. And in a miraculous turn of events after 15 minutes of frantic search, you reach out for your back pocket and the keys were there all along.
I used this metaphor, because there are times when even though it seems you’ve pulled out all possible tricks, the banks still won’t pull out any financing for you. This might be because you’ve had a missed payment, or you’re self-employed, or you just can’t pay them enough deposit.
In times like these, you may be able to find more opportunities via seller finance.
In a seller finance agreement, instead of demanding a huge deposit, the seller gets a small fee from the buyer or investor with any terms that they agreed within the deal. And when it comes to deals, the sky is the limit. Believe me.
It could be barter where the seller would get a thing of value such as an antique car or sailboat in exchange for the chance to make deferred payments or as part of the total purchase price.
Seller financing could also be helpful in times when the buyer or investor has yet to establish a credit history with banks in the area. It could also be used when the seller knows the buyer well, as would be the case of a family member such as a child who buys a property form a parent.
Just as any deal, there are some things that both buyers and sellers must watch for before making any big decisions with their money. Sellers, for their part, take more risks in the deal, since they also act as the lender. As protection, a seller could make the deal an agreement for sale. It’s very ideal, because the title to the property wouldn’t be transferred to the purchaser until all payments have been made and no further funds remain unpaid. So, unless the debt is settled, the buyer enjoys only limited rights to the property sold.
Parties must also make sure that everything, and I mean literally everything, must be put on paper. The seller could get the buyer to pick up the legal costs and other additional costs, otherwise he pays for everything himself.
More importantly, the sellers must exhaust every possible opportunity to determine if the buyer really has enough capacity to handle his obligations, because as explained earlier, seller finance exposes the seller to problems not involved in a sale handled by a bank or other conventional lender.
If you’re really interested in pursuing this strategy, it might be a good idea to brush up on some of the nuances and specifics you’ll need to know. There are lots of property mentors in the UK, I know Rick Otton teaches seller finance and I’m sure there are others who do too.