Seller financing is where the seller of the house you are buying help you finance the purchase. They do this by letting you owe them money instead of paying the full price of the house at the closing.
In the traditional ฝากขายคอนโด house-purchase transaction, the buyer uses savings to pay for about 20 percent of the purchase price. The remaining 80 percent is usually obtained from a bank as a loan. This is secured by a mortgage on the house the buyer is buying. In this traditional type of purchase, the seller receives cash for the house at the closing --- part from the buyer and the rest from the bank.
In some instances, the buyer may want to use the seller as a bank, instead of, in addition to, the regular lender. Many times the seller will agree. From a legal perspective, there are two basic ways that a seller can loan the buyer money, or give the buyer credit. The first, and the more common, approach is for the seller to take back a mortgage from the buyer.
When a seller (mortgagee) accepts a mortgage from the buyer (mortgagor) is called a purchase money mortgage (PMM). This is the equivalent of the seller loaning the buyer an amount of money equal to the mortgage, since the seller will not receive that money at the closing. In other words, the seller accepts the buyer's "paper" (the mortgage), signed by the buyer at the buyer at the closing, instead of cash. The seller may provide all of the financing or only some, and the borrower will get the rest of the financing from a bank or other lender.
In the second approach to the seller loaning money to the buyer, the seller conveys the property to the buyer on he installment method (also known as a land contract). Under the installment method, the buyer typically gives the seller a down payment and makes payments for the balance over a number of years. This has an important legal distinction from the seller accepting the buyer's mortgage. Unlike a mortgage, where the buyer receives the title to (ownership of) the property at the closing, in an installment-land contract the buyer usually doesn't receive title to the property until all of the required payments are made. Since the buyer doesn't have legal title (ownership) of the property until it is fully paid for, this approach is generally only usable where the seller provides all of the financing, because it may be difficult for the buyer to obtain additional funds from another lender.
Some of the technical legal distinctions between a purchase money mortgage and the installment method will be discussed later in this chapter.
Seller financing can provide significant benefits. Many sellers have substantial equity in their homes. They can benefit by being the lender if they don't need all of the equity to purchase another home.
A common situation is where an older couple is selling and moving to Florida or another southern area where homes can be obtained for less money. Using seller financing can get the sellers a return on their money significantly better than they can get on money market accounts and similar investments. Seller also can defer the tax they have to pay on the gain of the sale of their old home over the exclusion amount to the extent they haven't yet received installment payments. With the high taxes some senior citizens face on their Social Security benefits, this can provide an added bonus. Spreading out the gain on the sale of their home using the installment method can keep income lower and keep more Social Security tax free. However, now that $250, 000 ($500, 000 if married) can be excluded, this tax benefit will help most homeowners.
For the buyers, seller financing may be the only way they can qualify for the house they really want. With seller financing, sellers expand their potential customer bases. Seller financing can be a great result for both parties.
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