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Financing
... from the Seller's Perspective
An offer to purchase will contain
information about how the buyer intends to
finance his or her purchase.
Existing Financing:
If you currently have a mortgage loan
on your home, you may be faced with one of
to situations:
1. The buyer wants to pay cash and have
no mortgage.
This situation will require you to pay
out your existing mortgage and there will
probably be an interest penalty for doing
this. Remember that having to pay an
interest penalty effectively reduces the
price you will be receiving for your home.
2. The buyer offers to assume, or take
over, your remaining mortgage loan.
In this situation, before agreeing to
allow the buyer to assume your mortgage
loan, you should ensure that your mortgage
lender would release you from any future
obligation to repay the monies owing (if
the buyer defaults).
Contact the financial institution that
holds your mortgage to obtain information
about your position in each of the above
situations. It is a good idea to do this
in advance of signing a Listing Agreement
so you will be able to give your listing
agent accurate information.
Financing by the Seller:
If you have no existing mortgage, an
offer to pay all cash is ideal and, of
course, would be your preference.
But the buyer’s offer might state that
part of the purchase price is to be paid
in cash and part to be paid in payments
over a specified period of time at a
specified interest rate. In effect, the
buyer would be asking you to become the
lender.
When you are considering an offer
containing a request for "seller
financing" (sometimes referred to as a
seller take-back mortgage), think about
whether or not you want the responsibility
of collecting payments over an extended
period of time. If you do feel comfortable
with such an arrangement, be sure that you
verify the buyer’s source of income and
credit history before making a decision.
Ask your listing agent or a financial
counselor to fully explain the financial
significance and the possible consequences
of the terms offered.
Seller Beware!
If it is possible, as some individuals
suggest, for many people to quickly become
very wealthy by dealing in real estate,
then unfortunately, other people on the
opposite side of the same transactions
must, just as quickly, lose some of what
they have invested. Usually, those who
stand to lose are vendors who agree to be
party to a buyer’s unorthodox financing
arrangements in which the seller assumes
the risks.
Essentially, there is nothing wrong
with most innovative or creative financing
if all parties are fully aware of
potential risks and fully understand the
possible consequences of such risks.
However, the fact is that many owners
(vendors) are not aware of potential
disasters that may occur.
It is strongly recommended that you
secure competent advice from a real estate
agent or legal counsel before finalizing
any real estate contract. This
recommendation is much more urgent when
the offer you are considering includes
terms that could jeopardize you
financially.
Be wary of offers that require any of
the following:
| No cash paid as a
downpayment.
An amount of cash being returned to
the buyer.
Your equity participation.
A promissory note without a
registered mortgage.
An agreement to withhold
registering a mortgage.
The seller (you) to secure a new
loan before closing.
Terms said to be included, but that
are not written in the offer.
Concealing information from a
lending |
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