Seller Financing LTV
I am considering asking for seller financing on a property I am looking at. Is it typical for the owner to carry the majority of the loan, say 90%, or is it more likely to be 20-30%.
And is a couple points above normal mortgage rates typical?
Another question, with seller financing, is it typical to still be able to pay it off early, or would a seller most likely want to lock in a return with a prepayment penalty?
I've never had nor seen a prepayment penalty on an owner financed contract. Usually, they just want to get their money. Just don't sell them too hard on the tax benefits and the annuitty.
Pre-payment for seller financing is rare. I have heard of it once but that was a small commercial deal.
The reason sellers offer financing vary but many times fall into one of two categories.
1. They do not need the lump sum and feel that monthly payments are better (higher interest rate, different tax treatment). This is not the most common reason for seller financing. Happens with older sellers as they are the ones who care more about the income generally.
2. The seller is finding it hard to sell the place for the price they want. They agree to seller financing to get the deal done or to get the price they really feel is important. They are offering terms so they can get something else.
In all cases you will never understand why the seller would be interested in seller financing if you do not spend a fair amount of time talking with them about what their issues are.
Side note...
Some sellers do not want to receive payments but find they can not get the place sold if they do not offer seller financing. In those cases a middle ground exists where the seller offers financing to the buyer but immediately turns around and sells the note they receive at the COE. The seller gets cashed out at a discount, the buyer get a property they wanted with seller financing and an investor has a note that pays monthly. (Specific example - old lady selling did not want payments as she was concerned about her age. Property price was too low for conventional financing).
John
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