Seller real estate financing is most likely to occur in Virginia during hard economic times when many potential buyers may not meet a lender’s stringent requirements. Here are some facts about this type of mortgage loan.
Feasibility
If you are a buyer considering asking a seller to provide financing, check the property tax record first to see if there is a mortgage lien. If there is, don’t bother asking.
A property owner won’t offer seller financing if they are still making mortgage payments. The lender probably won’t allow it, and the seller most likely wants the full purchase price to pay off their existing mortgage and still make a profit.
Scenarios
Traditional real estate mortgage lenders require a borrower to meet stated minimum standards to qualify for a mortgage loan. Someone who has recently experienced a foreclosure or has never established a credit history may be unable to obtain such a loan. Seller financing is their only option.
Fixer-upper properties are prime candidates for seller financing because banks usually require an appraisal report that proves the home is in livable condition. Properties with significant roofing or plumbing leaks, mold issues or damaged foundations won’t qualify for a traditional loan. MLS listings usually say “cash-only” for these types of properties, but a quick call to the listing agent might open the door to the possibility of seller financing.
Balloon mortgages
A balloon mortgage is the loan product most commonly used for seller financing. The loan is amortized as if the borrower spreads payments out over 30 years, but the balance is typically due in five or 10 years. When that time comes, if the borrower wants to keep the house, they need to refinance into a traditional lender loan or make a large cash payment to the seller.
Seller financing can help you obtain a mortgage when all other avenues are closed. Carefully read the documents before you commit.