Why is Seller Financing so Rare?

Seller financing is a real estate agreement in which the seller handles the mortgage process instead of a financial institution. Instead of applying for a conventional bank mortgage, the buyer signs a mortgage with the seller. Owner financing is another name for seller financing.

Well hello again this is george thompson talking about why you should be investing in single-family rental houses or small apartment complexes it’s truly the best way i know that the average person becoming independently wealthy by the way if you like this video please hit the like button at any time also feel free to subscribe i try to come out with a new

Video every week today’s topic is one that i don’t think i’ve ever talked about before and yet it’s an important one and that is why is seller financing so rare first of all what is seller financing well seller financing also known as owner financing is where the seller of the property carries the mortgage for the buyer the buyer doesn’t have to go to a bank go

Through all the complicated hassles of getting a bank loan seller financing is generally much simpler give you a little bit of historical perspective back in the 70s and 80s and the 90s summer financing was very common i bought most of my properties was seller financing it was easy to do and it worked out well for both the seller and the buyer but with the advent

Of banks having due on sale clauses and their mortgages seller financing is almost disappeared you rarely rarely see it anymore and yet seller financing can be very good for both a seller and a buyer today i’m going to talk about why seller financing is so rare today i’m going to cover another video on summer financing maybe a couple of them but today i’m just

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Going to focus on why it’s so unusual today and there’s one reason somewhere in the late 80s or the early 90s the banks started instituting due on sale classes in all the mortgages now that has had a great benefit to a bank but it’s horrible for the property owner because it kills the chance of them selling on a contract and carrying the financing for a buyer why

Because the mortgage that the seller has must be paid off if they transfer title and trust me banks do enforce that some people have gone through some complicated methods of getting around that by using what’s called a wraparound mortgage or a subject to the mortgage the problem is they can all fail if that property is transferred to a new owner and the bank finds

Out they will call that loan which means you gotta hustle and get that property refinanced and pay the bank off otherwise the bank could foreclose so what happens if you do one of these complicated methods and you sell the property and you carry the contract but there’s still a mortgage on the property what happens if a year or so later the bank finds out that

You’re no longer the owner of the property well guess what they’re going to call the mortgage due that’s a very touchy situation then has serious legal problems number one the seller can’t refinance it because the seller doesn’t own the property anymore the buyer will have to refinance it but what if the buyer can’t get a mortgage what if he doesn’t qualify you

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See the can of worms you’re getting into so the bottom line is don’t mess around with any kind of complication to get around that dual on sale clause and if you try to do it be sure and get a good real estate attorney to give you the proper advice okay now if you’re the seller try to get a large down payment if you’re carrying the financing when i say large 20

Maybe 25 virtually the same amount that the bank would ask for the reason is very simple you want the buyer to have more at risk than you do so if you have to foreclose you’re gonna be okay don’t sell it with five percent down or no money down i bought properties on that basis many many times but it’s very risky i i came out okay at all of them but it’s tricky

If you’re the buyer expect to pay one percent or so more interest than you pay a bank why simple the bank has a standardized process seller doesn’t a seller has to set up collection escrow or collect the money themselves it’s a it’s a little bit of a hassle they want the extra one percent interest to cover their risk in case they do have to foreclose now the

Monthly payment the length of the mortgage and all the terms are negotiable much more negotiable than with a bank so you just discuss with the seller what they want what you want and try and meet somewhere in the middle bottom line is i love seller financing it’s just hard to do you virtually cannot do it if there’s a bank mortgage on there the bank mortgage has

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To be paid off but if the seller owns the property free and clear then yes try to get a the seller to carry a mortgage i’m going to talk some more about the advantages and disadvantages of seller finance in a future video but this gives you the main reasons why they’re so unusual today it’s because banks have the due on sale clause and that kills the chance of

Getting seller financing if there’s a mortgage on the property thank you for watching the video i look forward to seeing you next week you

Transcribed from video
Why is Seller Financing so Rare? By George T – Investing in Rental Housing