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Seller financing is a type of real estate exit strategy in which the seller of the property essentially acts as the lender and gives credit to the buyer. The buyer then must pay the seller Customized Green Bay Packers Jersey , as per the agreement drawn between them. Seller financing often involves a balloon payment later in the deal, when the buyer is financially stable to pay off the entirety of the money. This strategy is also called Owner financing. Now, let us look at different types of seller financing.
Lease with an Option to Buy
A lease agreement is drawn in such a way that the buyer has the option to buy the property at the end of the lease term, by paying off the remaining amount. An initial non-refundable down payment, called the option fees is made by the potential buyer. Then a contract is signed by both the parties. The contract can be drawn in two ways Cheap Green Bay Packers Jerseys , whereby the buyer is either given an option to buy the house at the end of the lease period or heshe is legally obligated to make the purchase. This amount or part of it may be added towards the final payment, if the buyer chooses to buy the house. This depends on the contract.
Also, the monthly rent paid by the buyer maymay not be added to the final purchase price. Usually a part of the monthly rent is added to the final price. This is called the rent credit. For example, say a buyer agrees to pay a rent of $1000 for a period of 2 years and the contract states that 25% of it will go to the final payment as rent credit. The buyer will now get a credit of $6000 (0.25*$1000*24 months).
Junior mortgage
In this strategy, the buyer does not obtain a loan for the full amount from the seller. The buyer obtains a first mortgage for most the amount from a lender or bank Dexter Williams Packers Jersey , and obtains a second mortgage for the remaining amount from the seller. In this case, the seller receives the full money from the first mortgage. If the buyer is unable to pay the second mortgage the seller can foreclose.
For example, John is planning to buy a property for $400,000. He could obtain a loan of $300,000 from a bank. He can now borrow the rest of the money as a secondary loan from the seller for an interest. The $300 Jace Sternberger Packers Jersey ,000 will proceed directly to the seller and the $100,000 will be paid to him as per the promissory note signed.
Land Contract
The deed of the property i.e. the legal ownership of the property is with the seller, but the buyer can occupy the property, while paying off the debt to the seller. The deed is transferred to the buyer only after the last installment of the agreed upon amount is paid.
For example, seller Jane signs a land contract with a buyer by which the buyer agrees to pay a total sum of $100 Elgton Jenkins Packers Jersey ,000 in equal monthly payments of $4000 over the course of 25 months. During this time, the buyer can use the property but the deed of the property will remain in Jane鈥檚 name until the 2-year period is complete. The deed is transferred to the buyer once the 25th installment is paid off.
Subject-To
The buyer and seller sign a promissory note, where the buyer agrees to pay the amount remaining in the seller鈥檚 mortgage, in equal monthly payments and with an initial down payment. The mortgage that the seller has on the property is still in the seller鈥檚 name. It is the duty of the seller to pay off the mortgage. If the buyer defaults on his payments, it is the seller鈥檚 responsibility to still pay the mortgage. This is also called the All-inclusive trust deed (AITD).
For example Darnell Savage Jr. Packers Jersey , seller John has an outstanding loan of $200,000 on a property. Buyer, Jane wants to purchase the property. John can now come to an agreement, where Jane pays off the debt in equal monthly payments, plus John鈥檚 desired profit Rashan Gary Packers Jersey , to the seller. John will use this money to pay off the debt that is still in his name.
At the end of the lease term, if the buyer is unable to secure the financing required to purchase the property heshe will foregoes all funds paid up until that point. If the buyer chooses to buy the property, the option fees and rent credit will be deducted from the final amount to be paid.
Assumable mortgage
Here, the loan availed by the current owner is taken over by the buyer with the lender鈥檚 approval. Ownership of the property is transferred to the buyer. The loan will be transferred to the buyer with the same loan repayment agreement. The seller should clear themselves off any liability from the mortgage