Seller-Finance

Not every seller needs or even wants to receive all cash as payment for his property, so you may be able to finance part or even all of an investment property purchase thanks to the property seller’s financing.
Seller financing is a transaction in which the seller accepts anything less than all cash at closing. One form of an all-cash transaction to the seller is the buyer literally paying all cash, but typically it’s a transaction in which the buyer uses a conventional loan (money to purchase the property from a lender other than the seller) so that the seller effectively receives all cash at closing.
Some sellers are financially well off enough that they don’t need all of the sales proceeds immediately for their next purchase or are buying a property for less money or maybe not buying a replacement property at all and prefer to receive payments over time. They may be looking for the payments to replace their income in retirement or they may prefer to receive the funds over time so they can reduce their taxable income.
Any seller with equity can offer seller financing, but usually private individuals are the best sources. The best candidates for seller financing are sellers with significant equity or, best of all, folks who own their property free and clear. Many seniors have owned their properties for years and may be more willing to extend a loan.
Sometimes sellers offer this option, you need to pop the question. We can think of two good reasons to ask for the seller to help finance an investment property purchase.
Mortgage lenders, which are typically banks or large monolithic financial institutions, aren’t the most flexible businesses in the world. You may well be able to obtain a lower interest rate, lower or waived fees, and more flexible repayment conditions from a property seller. There are also many expenses with conventional loans that a property seller may not require: loan points, origination fees, and an appraisal. Some sellers may not even require a loan application or credit report, but they’d be wise to go through due diligence including a personal financial statement on the buyer.
Perhaps you’ve had prior financial problems that have caused mortgage lenders to routinely deny your mortgage application. Some property sellers may be more flexible, especially in a slow real estate market or with a property that’s challenging to sell. A seller can also make a decision in a few days whereas a conventional lender often takes weeks.