Advantages of Seller Financing – Seller Held Mortgages and Land Contracts

Seller financing is one of the most under used strategies for funding a home purchase. Seller held mortgages and land contracts are two of my favorite methods of buying homes.   There are many other types of seller financing options available, but for today I’m going to stick with seller held mortgages and land contracts.

KEEP IN MIND THAT I’M NOT AN ATTORNEY AND NOT GIVING LEGAL OR FINANCIAL ADVICE.  PLEASE CONSULT A PROFESSIONAL ATTORNEY, CPA, REALTOR, ETC REGARDING SELLER FINANCING OPTIONS.

This house located in Culver, IN was originally purchased by a family member using land contract. It is nearing completion and will become a short-term vacation rental house.

Both of these methods of purchasing and/or selling a property have advantages and disadvantages for both parties.  Ultimately, seller financing options can be better for the seller because it puts more money in the seller’s hands.  The down side (or the good side depending on your situation) is that it can take years for the seller to obtain all of that money.

Buyers benefit from seller financing arrangements because they can adjust terms and often buy a property with little (or no) money down.  Seller financing doesn’t require 100% cash purchases. I think we can all agree that $100,000 is a lot of money to pay out of pocket for a home.  I typically structure these deals to payoff the remainder of the seller’s mortgage and the seller and I make a contract or mortgage for the remainder, but more about that later.  Just remember that seller financing is a valuable tool for both parties and you are only limited by your imagination.

This article discusses the advantages and disadvantages of two types of seller financing, the seller held mortgage and the Land Contract. In full disclosure… These are two of my favorite methods for purchasing houses.  I like to make deals that work for both parties. I feel that seller held mortgages are particularly valuable.

If a seller has equity in the house these can work really well to help them obtain more money over a longer period of time.  They get the interest that a bank would typically get and I like putting money in the hands of regular people, not a large corporation.

Many times, people on Social Security love these types of agreements because we can structure a contract to get them a monthly payment over many years.  The monthly payments they receive supplements their Social Security.  This allows them to live comfortably and securely for many years.

Additionally, I like to use these agreements to buyout landlords that are entering retirement.  Most landlords are use to getting cashflow form money rent payments.  In this case we still make a monthly payment to the seller.  Payments are smaller than the rental payments they received from tenants, but they are 100% hassle free.  All they need to do is walk to their mailbox and get a check.

Owner or Seller Mortgages – I love buying houses using a mortgage or note that the seller maintains.  In this type of financing the seller acts in the same capacity as the bank.  In the initial steps a purchase agreement is signed by both parties. A mortgage document is drawn up by an attorney.  The buyer and seller execute the sale through a title company.  The buyer obtains legal and equitable title as a result of the purchase.  Both parties sign off on a mortgage that the seller maintains.  The buyer makes payments to the seller just like a bank.  Sellers get the interest that the bank would have received. Obviously, these documents can be drawn up in a number of ways which are only limited by your imagination.  I typically put a little money down on these deals, amortize over 30 years, but have 5-7 years of payments with a balloon payment made at the end.  A properly structured seller held mortgage can be sold off on the secondary market or to another person.

Land Contracts – Buyers typically give a down payment on the property and make an agreement in contract with the seller to make scheduled payments to the seller.  The differ from a seller held mortgage because the seller maintains legal title and the buyer obtains equitable title to the property.  I’m not an attorney so NEVER TAKE ANYTHING I SAY AS LEGAL ADVICE… Legal title means you someone actually owns the property.  Equitable title means the ability to use and enjoy the property.  Legal title doesn’t transfer to the buyer until the land contract is paid off.  There are a number of issues using land contracts.  My biggest issue has been obtaining insurance on a property that’s under land contract.  Additionally, I had a land contract seller not cash my checks and claim they didn’t receive payment.  The tried to repossess the property and kick out my tenant.  They wanted to execute another land contract with someone else, get their money, and kick them out as well. Ultimately, we had a small legal struggle and I won.

If you have a property or know someone that does, give me a call or complete our CONTACT FORM.

I would love to discuss some options for purchasing ANY REAL ESTATE YOU MAY HAVE.  Let’s see if we can work an agreement that is beneficial for everyone involved.  Thank you… Best of Luck!

Best Regards,

Justin Carmack

(317)500-4409

justin@huntingindyhouses.com