How to Navigate Seller Financing for Oroville Real Estate

You may have heard of seller financing, but do you know the details? This is a selling strategy that effectively cuts out the bank and the mortgage broker and keeps the financing between you and the buyer. There are many buyers now looking for seller financing for Oroville real estate, and for good reason. However, like most anything else, Oroville seller financing comes with its share of pros and cons.

The Specifics of Seller Financing

In this scenario, the seller acts as the lender AND the seller. Rather than having a lender provide a mortgage, the buyer will pay money to the seller each month. 

Going this route will terminate several expenses for the seller, such as property taxes and homeowner’s insurance. The buyer will take on those expenses. The seller collects the money (principal and interest), and when the loan (to the seller) is paid off, the seller is out of the equation.

To ensure that the buyer pays, he or she will sign a promissory note and deed of trust (in California), which sets up the details. They will outline the payment schedule, the interest rate, any consequences should the buyer not make payments on time, and many other details about maintaining the property, insuring it, etc.

These financing arrangements typically don’t last a long time. Most seller financing agreements will have a loan that will be amortized for 30 years, which will include a balloon payment after just five years, which means the total amount remaining on the loan will have to be repaid at the 5-year mark. This is often done when a buyer refinances the property through a traditional bank or mortgage broker. 

Buyer Pros:

  • Mortgages aren’t needed, which saves time and money (origination fees, document prep fees, flood certification, etc.).
  • The closing can go a lot faster.
  • If you have bad credit, you may be able to offset this with a higher down payment. The seller can choose to be more flexible about your credit.
  • You might be able to buy a property that is not “lendable” by conventional standards.

Buyer Cons:

  • Higher interest rate than a traditional loan, typically.
  • You have to figure out how to pay the balloon payment when it comes due.

Seller pros:

  • You might get people in the door faster and more buyers interested in your property.
  • You may be able to avoid making some of the more expensive repairs to your home.
  • You can earn a good interest rate on your money.
  • If the buyer cannot make his or her payments, then you can foreclose, keeping the down payment and any other payments made.
  • You can resell the promissory note.

Seller cons:

  • To do this, you usually have to own the home outright, or at least pay off any existing loans with the buyer’s down payment.
  • You will need to make sure the buyer is paying the property taxes and insurance.
  • A buyer can suddenly stop paying you, which can be a big problem. Buyers might just take off, meaning you might have to foreclose on the home, which takes time and money.
  • If you do take back the house, then you may need to make some repairs if the buyer was not good to the property.

If everything goes according to plan, then seller financing can provide a great method to buy and sell Oroville real estate. However, there is risk involved. Consulting a tax professional, doing research, and talking with those who have done it before can be highly beneficial. 

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