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The mortgage market is in a credit crunch. This makes it hard for people to get a mortgage. If you do not have very good credit, it can make it very hard. However, there is another option. This is to have the seller finance the house. This is very popular in some areas, and there always seems to be a lot of people willing to sell a house this way. It is very important that the buyer knows what they are getting into and to have their own lawyer look at the contract. There are people who sell houses this way that are out to make a quick dollar and could leave the buyer in a bad situation.

The first step to buying a home with seller financing is to find a reputable person to sell you the home with this option. There are lots of people and companies that own homes that will offer seller financing. However, many are out to make money off the buyer and may add fees or set up payments that the buyer cannot afford. This allows the owner to take back over the house, keep the down payment you made, and offer the same rotten deal to another buyer. Many people who offer seller financing, do this over and over, making lots of money. It is important not to get involved in a situation like this.
Once you find a reputable seller and a house you like, it is time to negotiate. Owners may say there is no negotiating when you buy with seller financing. This is not true. There is always room to negotiate. It is very important to agree on three items. The price, the interest rate and the length of the agreement. These three items are critical.
The price, interest rate and length of the contract is what will determine your monthly payment. When you negotiate, it is better to accept a higher interest rate to get a lower price. This could save you thousands of dollars in taxes for the life of the contract. This is because if you buy a house and agree a price of $60000 at 12% interest over 15 years your payment for principle and interest would be around $720. If you wrote the contract for this house at $71000 at interest rate of 9%, your payment would be around $720.00. The payments are almost the same, but the difference is with the first one you will pay $11,000 more to the seller in interest which could save around $3000.00 in taxes over the life of the contract (this figure could be more or less depending on your financial situation as they pertain to the tax code).
A contract like the one mentioned above with a high interest, but a lower selling price, would need to contain a clause that would protect the seller if you financed the house with a mortgage company shortly after your contract was signed. This clause would state that because the seller accepted a higher interest rate to give you a lower selling price, you agree to pay the seller $10000.00 if you refinance this contract with a bank or mortgage company within the first year. The clause would also state the amount would decrease by a set amount, say a $1000.00, every year the contract is kept with the seller. So after 10 years you would pay the seller no additional funds if you financed the rest of the contract through a bank.
A clause protecting the sell is one item the seller would be concerned with. The second is that the seller must claim the interest on their taxes as income. However, most people who sell houses are investors who will eventually have to pay capital gains taxes. These taxes will be much lower since the price of the house is so low and Will help offset the taxes they paid on their interest.
If you decide to buy a house with seller financing, remember to get a lawyer, find a reputable seller with a house you like, and then let negotiations begin!

Learn more about this author, James Walters.
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