The Power of Oregon Seller Financing
While most Oregon homebuyers use traditional lenders like banks, mortgage brokers or credit unions, there are solid reasons (and a very helpful alternative) to purchase a home without them. Buyers avoid traditional lenders for a variety of factors and when they do, one mechanism they frequently turn to is known in our area as seller financing. What Is Seller Financing? Also called owner financing, seller terms, owner carry, seller carryback, or seller carry, seller financing allows a homebuyer to purchase a property by making an initial down payment, then making direct payments to the seller. While Oregon law has rules in place especially to regulate large-scale property sellers who handle a significant amount of seller-financed transactions (notably commercial firms, such as finance companies), the process still remains relatively simple for Oregon home buyers and sellers who enter into a home sale without using a traditional lender. The Basics-A key factor that helps to make seller financing an option is if a homeseller has either no loan, or a very small loan remaining on the property to be sold. Having little or no loan on the home being sold means that more of the buyer's down payment will go to the seller, and not diverted to the lender of a seller's existing home loan. Most home loans now have what's called a 'due on sale' clause, which means a seller's home loan must first be paid off upon the sale of a property. The single factor of having no or little loan balance on a property is often the single most limiting condition in determining if seller financing is an option. If the property has either no loan, or only a small loan remaining, this can really open the door to seller financing. Basic Tools-Several tools can be used to establish seller financing. In Oregon, these include either a trust deed and note, or a land sales contract. Here is a recent legal article outlining some differences between these two instruments for Oregon seller financing . Most common is the trust deed and note, which can be prepared by Oregon title companies/escrow firms. Less common is the land sales contract, which can usually be considerably more labor intensive and expensive, since in Oregon land sales contracts can only be drawn up by an attorney. What Makes Seller Financing so Powerful-Seller financing can be very powerful. How else to describe a form of financing that can: 1. Make an otherwise 'unsellable' property sellable, 2. Render an otherwise 'unqualified' buyer qualified, whilst escaping considerable loan fees, underwriting and requirements, like an appraisal. 3. Provide income to a home seller, with interest, all secured with the protection of a legal instrument in case of default 4. Allow a homebuyer the ability to purchase a home while selling a less liquid (hard to sell) asset, or re-building credit 5. Give both buyer and seller the flexibility to negotiate what works for them, rather than a bank's pre-determined, 'cookie-cutter' loan term, interest rate, or myriad of other conditions. Here are a few scenarios illustrating some of real life advantages of seller financing-Scenario #1 involves a house located in a large Oregon town with no foundation and a faulty roof. The property is otherwise attractive, yet routine lender guidelines require a foundation for residential properties. The seller begins to think his house is a 'lemon.' That is, until he learns that since he owns the property 'free and clear' with no loan, that he can sell the property directly to a buyer. A buyer who happens to be a contractor discovers the house and realizes he can put a roof on the house for the cost of materials, then hire foundation work far more cheaply than someone unlike him who is not in the building trades. An agreement is made. As a result, buyer and seller see the transaction as a 'win-win.' Scenario #2-involves a nice home located in a tiny Oregon town between the Willamette Valley and Oregon Coast. Given
