We are starting to see a turn in the real estate market as mortgage interest rates continue to go higher which ultimately slow down the number of properties selling. Another major factor is the number of buyers would need the assistance of getting a loan in order to buy a home are now not participating in the market but the cost of mortgage payments have almost doubled since last year. This is around the time where we start to see creative financing being offered as the cost of getting a loan is to expensive for most buyers. One option that is coming around again is seller financing which negates the need to get a traditional mortgage loan from the bank. Let me explain how this typically works.
First, the owner of the property essentially becomes the bank. The buyer would still be putting down a down payment on the house, this amount can be negotiable but in a lot of cases is around 10 to 20 percent. The remaining balance would be financed by the owner. So let's say you bought a home for $1,000,000 and put down $100,000 as a down payment. The owner of the property would then finance the remaining $900,000 that is owed to them of a period of time that is negotiated between the buyer and seller. The great thing about doing it this way is that you can structure any way you want as long as both parties agree to it. You can do a very low interest rate or even no interest rate for the first couple of years or just pay a flat amount every month to the owner, the options are endless. Of course, if the buyer doesn't make these payments most contracts would have the ability for the owner to take back the property.
The inventory of these homes will be limited as the market is still relatively strong. If the economy does got into a recession and real estate prices come down with higher interest rates expect to see more owners advertising they they are willing to do creative seller financing. A buyer can also ask the owner that is not advertising it if they would be open to it as long as they own their home free and clear or have a lot of equity in the home. Creative financing is a lot of fun as long as you have two parties that are open minded and willing to negotiate. Our California Association of Realtors contract have a special 4 page addendum that covers seller finding and disclosures. This is a small snap shot of the addendum that we would use when assisting a client buy a home in this manner. For those with additional questions feel free to reach out to us direct at 949-355-1622 and we will be happy to assist you.