Seller As Mortgage Lender

In today's tough real estate market one of the biggest obstacles to selling your home or commercial building is the buyer's ability to obtain mortgage financing. It is much harder to qualify for a mortgage than it was 1 or 2 years ago. Some sellers may want to consider financing all or part of the purchase price as a way to close the sale.

In a business setting, I've come across more situations in which seller financing plays a significant role. Financing for commercial properties, like jumbo mortgages, are the most difficult to get. While some traditional bank financing is still possible, it generally will not cover the full purchase price. Every commercial transaction I've handled this year, whether real estate is a part of the deal or not, has included seller financing as part of the purchase price payment.

These same financing difficulties are also affecting the home buying market. In Sunday's Wall Street Journal, writer Amy Hoak discussed the trend of home sellers stepping in and financing deals on their own. For those readers with a print or online subscription the the Wall Street Journal, I recommend reading Ms. Hoak's article.

Being able to finance the sale of your home can give a seller an edge. If a seller can eliminate the hurdle of qualifying for a bank loan, then the pool of interested buyers doubles. A seller can benefit from receiving steady income stream from the mortgage and deferring capital gains.

On the downside, if the buyer defaults, the seller has to go through the foreclosure process to reclaim the home. Also, seller financing works best for someone who has the home paid off and does not need all of the purchase price up front to pay on the next home.

Sellers interested in pursuing this avenue should consult legal counsel to prepare appropriate documentation to address the key deal terms such as how much of a down payment should be provided and the terms for payment, late fees, events of default, required insurance, etc.

Sellers may also want to consider the use of a loan servicer to handle the recordkeeping and collection of mortgage payments. Loan servicers and peer-to-peer lenders mentioned in Ms. Hoak's article are sellerloans.com and virginmoneyus.com.