Exploring creative finance solutions

Seller Finance - is when the seller owns the property free and clear which means that there are no mortgages, debts or liens in place.  The seller works out terms and conditions with the buyer and the seller acts as the lender.  This is usually 5-10% down payment and an interest rate less than the going interest rate.

For example:  The seller owes zero dollars on the home but offers to sell the property to the buyer for terms such as 4% Interest and a mortgage amortized at 30 years.  The seller keeps all of the money because there is no current debt on the property.  The Deed gets transferred to the buyer.  The seller might also negotiate a "Balloon Payment" which just means that buy may be required to refinance the loan after 5 or 10 years to relieve the seller of holding the note.

Wrap Around Mortgage - This is when there is an existing mortgage in place, but the seller is going to seller/owner finance the equity position while still making the normal payment to the bank.

  For example:  The seller owes $100k but is selling it for $200k.  The seller has a 2% interest rate but offers to sell it to the buyer for 4% interest for 30 years.  The seller's existing payment to the mortgage company is $1,000.00. The buyer makes the full monthly payment of $1,500.00 to the seller and the seller pays their original note of 1k to the mortgage company and pockets the remaining $500.00.  The danger to this for the buyer is if the seller does not pay the loan, the mortgage company can foreclose, and the buyer could lose the entire investment.  It is recommended for the seller and buyer to use a title company or an experienced Real Estate Attorney to close.

Subject To or SUBTO - This is much like it sounds, it means that you are purchasing the home or property subject to an existing mortgage that is already in place.  That means the buyer will be taking over your existing mortgage, rate and terms subject to what you already have.  

For Example:  If your current loan has $110,000.00 still owed and your current interest rate is 3.25% then the new buyer will be taking over the remainder of the debt as well as your current interest rate and any other terms that are tied to your loan.  The loan and the insurance policy will still remain in your name which will help to rebuild your credit.  The deed will be transferred into the new buyer's name as well as the responsibility for the debt, insurance, repairs, utilities and HOA fees if any.  Depending on the situation you might negotiate a down payment, possible closing costs, agent's fees and or moving expenses. The payments will be made and transferred from a 3rd party servicing company. 

Hybrid-Subject To - is the same as the SUBTO however you as the seller may have equity in the home.  In this case you may structure the deal the same as the SUBTO, but you may also negotiate terms for the equity that you have in a separate payment directly to you which would create a monthly income stream to you.

A Lease Option is when you #1 Construct a Lease agreement with a buyer for a number of years and then at the end of the lease you agree to sell them the home at a specific pre-determined price and possible terms.  The buyer will usually be charged a non-refundable deposit that buys them the right to purchase the home.  This is usually helpful for someone who is not quite ready to purchase due to down payment, income situation or credit history.

For Example:  You draft a lease for the "Tenant" to rent your property for a period of 5 years.  

You will then also sign a promissory note/Purchase Agreement for the tenant to have an option to purchase your home, but that option is forfeited after that 5-year mark.  Their responsibility is to go and procure funding to pay the balance of the loan in full prior to that date.  If they are able to move forward, they will be able to purchase your property for the price that you agreed on when the contract was drafted.  If they do not move forward they will forgo the downpayment/deposit for purchase. 

A Cash Buyer - is exactly as it sounds.  They do not require financing and will come to the closing table with a cashiers check.  This option is amongst the fastest transaction out of all because there is nothing required on the bank or mortgage company side of things.  

This can happen as fast as the Title company perform their due diligence, documentation prep and title search.  The downside to this option for sellers is that a Cash Buyer Investor only has so much liquid cash to invest with so they will surely offer you less than the value of the property.  However, this can be the one option that might keep you from losing your home in a foreclosure, Tax Lein Auction or Probate Issues.