Can someone please explain in detail how seller financing works? I have a home with an existing mortgage of $110k but is worth $175k based on recent appraisals. If I put it on the market and do seller finance, how does it work? Do they pay me a down payment? Do they sign a lease? Does it have to be recorded??? Just the basic step by step.
Thanks!!!
If the house will sell for 175k and you owe 110k, you have 65k worth of equity. Lets say Billy the buyer goes to his lender and gets approved for a mortgage with a loan to value ratio of 75%. That means he can only get 131,250 (0.75 x 175000) from the bank. He has to come up with the difference to buy the house. You. the vendor can sweeten the deal and get him to buy by carrying the difference of 43,750 (0.25 x 175000).
So when Billys bank comes with a check for 131,250 - 110k pays off the existing loan and 21250 goes to you the seller. Billy now owns the home but he pays money to his lender (person who gave him 131250) as well as you the seller who lent him 43750.
I neglected closing costs and alot of the other specific stuff but thats the underlying principle behind seller financing.
Thanks for the info!
So they actually get title to the property prior to my receiving the full purchase price. Does the balance owed to me represent a 2nd mortgage? i.e., how do i guarantee payment and what do i do if i don’t get paid?
you can record the note - same as bank does. Your note will be in second position tho. If you don’t get paid you would foreclose on him same as a bank would.
KEC