As Real Estate Investors, we all can recall a situation where we spent weeks or even months putting a deal together only to have it fall through at the last minute due to the buyer’s inability to secure financing. As sub prime lending guidelines tighten and mortgage rates rise, along with the current restrictions on seasoning of title, we need alternative sources to get transactions closed and funded. Seller financing combined with a wrap around mortgage is the answer.

Seller financing is an invaluable tool in helping you broaden your base of clients, negotiate effectively and close transactions more quickly. It used to be that if a property seller agreed to seller financing, they would have to hold the note for a long period of time to realize the value from the sale of their property. No more waiting! A seller can offer seller financing and still receive cash up front on the sale of their property even if the seller/investor has a mortgage on the property. Structuring the mortgage note appropriately for resale is crucial in maximizing the return when the seller decides to sell. Some of the reasons that a borrower may not qualify for conventional or sub-prime financing are due to recent self-employment, lack of open trade lines of credit, unpaid collections, not enough funds for down payment and closing, source /seasoning of funds or length of time that seller has been in title. In any of these situations a seller financed note can be created and sold simultaneously with out drastic discounts. Currently, there are billions of dollars worth of seller financed mortgage notes generated every year.
Tighter guidelines with both conventional and sub-prime lenders can shut out potentially good buyers from the home buying market.

Because a lender is not involved, the closing costs are greatly reduced, the borrower does not pay a processing fee, underwriting fee, or other fees usually associated with loan originations. Generally the fees are limited to legal and title, enabling the borrower to use their funds for the down payment.

Seller financing does not work for every situation, but when there is a need for alternative financing, seller financing can benefit everyone involved.

To evaluate if a deal is viable these are the key elements that must be known.
• Fair market value of property
• Credit score of borrower
• How much does the seller owe on the property

How does it work?
If the seller/investor has a mortgage on the property, the new first lien loan to the buyer is created as a “Wrap Around” also referred to as “All-Inclusive Contract of Sale” or “subject to”. A “Wrap Around” is exactly what it sounds like. A new loan is created for an amount that includes (wraps around) the amount to the seller and the amount that the seller currently owes to his Mortgage Company or bank. When the new loan is sold, the underlying lien is paid off and the new lien becomes a first lien.

What are the advantages or benefits?

Real Estate Investors benefit when they are able to:
• Increase marketability with a wider group of available purchasers
• Sell property faster & close transactions quickly, resulting in reduced carrying time and costs.
• Obtain asking sales price and still receive cash at closing
• Have a dependable alternative source for closed loans

The Buyer benefits because of:
• Lower closing costs
• Easier qualifying and faster approvals
• No Pre payment penalties necessary

It isn’t important to completely understand the technical aspects of seller financing, but what is important, is that you contact a professional who will advise on current privately held mortgage buying guidelines so that a marketable mortgage note is created. By incorporating the concepts of this program with your ongoing business/marketing plan you can create a wealth of opportunity.
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