Grove Family Investments

In today’s real estate market, banks and realtors have created a pervasive narrative that the only way to buy or sell a house is through them. This narrative serves their interests, generating substantial commissions, fees, and other charges that line their pockets and raise the cost of housing. However, for centuries, people have been buying and selling houses without involving banks using “seller financing” (AKA “owner financing”).

What is Seller Financing?

Seller financing is a method where homeowners who have their house nearly or entirely paid off can act as the bank. Instead of paying mortgage payments to a bank, the buyer pays the seller directly over time. A title company or closing attorney handles the creation of mortgage documents and ensures the deed is officially transferred to the buyer.

The Advantages of Seller Financing

1. Lower Commissions:
   By not using a seller’s agent, you can significantly reduce the commissions associated with the sale.
2. Avoid Bank Fees:
   Seller financing eliminates the need for banks, thus avoiding their hefty fees, points, and other charges.
3. Faster Closings:
   Without the need for bank approvals and the associated financial scrutiny, transactions can close much faster.
4. Flexible Terms:
   Sellers and buyers can agree on interest rates and loan lengths that make the home more attractive to potential buyers.
5. Tax Savings:
   Since the proceeds of the sale won’t come to the seller entirely in one tax year there can be significant tax savings. The balloon payment (see below) can be set to a future date when the seller will be in a lower tax bracket.
6. The Banks Don’t Get Richer:
   They already have enough money.

Understanding Amortization and Balloon Payments

Seller financing also offers flexibility in loan structuring. While the loan can be amortized over 30 years, a balloon payment can be set for an earlier date if the seller wants this. This means that the monthly payment is calculated as if the loan will be paid off in 30 years, but the remaining balance is due at a specified earlier time. As an example, I purchased an Airbnb in N. Georgia using this method. My monthly payment is based on a 30 year term but I must pay off the loan after 6 years. To do this I will refinance with a new bank loan.

Seller financing offers a refreshing old-school alternative to traditional bank-mediated real estate transactions, providing benefits for both buyers and sellers. By cutting out the middlemen, it brings flexibility, speed, and cost savings back into the home-buying process.

If you would like to learn more about the house I purchased with seller financing (I also sold one with seller financing) feel free to reach out and schedule a call.