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Unless paying cash, most buyers go through the traditional methods of getting financing from a lending institution, and have some money either saved or made from the sale of a prior home to use as a down payment. Once a buyer has made an offer that the seller has accepted, the buyer typically needs to get a loan for the agreed upon price of the property.
An important item that a seller and/or their Realtor ® should try to determine is whether the buyer has been pre-qualified for the price of the property they are considering. It's not uncommon for buyers to look at properties out of their price range. This can waste everyone's time, and possibly even influence the likelihood of other offers being made by other prospective buyers. Although a buyer is typically obliged to furnish the seller with some form of “conditional loan approval” early in the contractual process, sometimes an early determination of affordability (actually an implied responsibility of the buyer's agent) can help avoid lost time and marketing opportunity. In any case, a buyer's ability to qualify for financing the purchase is critical to the seller's interests.
There are alternative methods to homeowners who are anxious to sell, who are not in need of all of the proceeds from the sale, and who are willing to consider seller financing. This type of financing can be done by taking on a second mortgage, or even by financing the entire purchase if the seller owns the house free and clear.
Seller financing differs from traditional loans in that the seller does not give the buyer cash to complete the purchase. In essence, the seller becomes the lending institution for the buyer. This loan involves extending credit against the purchase price of the property while the buyer executes a promissory note and trust deed in the seller's favor. As in loans from lending institutions, a deed to the property is created, but in seller financing, the seller holds the deed, until the buyer has made the last payment.
When the terms are worked out between buyer and the seller, the title or escrow company prepares the necessary paper work. As part of this process, it's important that the seller check the buyer's credit rating. The seller needs to be confident that the buyer is able to make the required payments in a timely manner.
Why consider seller financing? There are many reasons, and a variety of pros & cons for both buyers and sellers, but a few of the greatest benefits to the seller are: (a) it opens the doors to a much broader pool of prospective buyers, (b) it greatly increases the likelihood that a sale will result quickly, (c) it's highly likely that a sale will be at or very near the listing price, (d) in the event of default, the seller can reclaim the property, retain all monies paid by the buyer, and sell the property again, and (e) over the term of the note, the principal & interest earned can yield net proceeds greater than would have been realized with a “straight sale”.
Sometimes, getting “creative” with financing can make all the difference in encouraging offers, qualifying buyers, closing smoothly & quickly, and yielding the best possible results for the seller. Hawaii Discount Real Estate professional can be instrumental in assisting with financing issues, as part of the listing process, and as prospective buyers materialize. Finding ways to make your property affordable for that marginal buyer who “really wants it” can make or break a deal, and ultimately provide the best result for the seller, sooner rather then later.
