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How to Buy Real Estate When You Can Not get Approved For A Loan

Writer's picture: tannerpile22tannerpile22

Not being able to receive a loan for a mortgage company can be stressful. A great option is to utilize seller financing terms. This works best when a seller has fully paid of the loan on a property and will have a promissory note written between buyer and seller for the buyer to pay back the seller in monthly payments. In this situation the seller is essentially the lender for the buyer.


This benefits the seller because they can negotiate terms with a interest rate makes them a good amount of money in addition to the sale of the property. They also will not be taxed on capital gains for the entire lump sum since they are receiving monthly payments.


This benefits the buyer because they can acquire a loan when they were not able to get one from a bank. Also, they can negotiate a down payment and interest rate that is affordable to them.


This can also be done if the seller has a loan and decides for the buyer to do a wrap around loan. In this case the seller will likely have a higher interest rate than what they currently have on the loan. This can be risky for the seller because the owner of their loan can enact a due-on-sale clause. This would require the seller to pay off their loan entirely causing problems with the agreement with the new buyer to do monthly payments.


As the seller, one thing to be cautious of with the buyer is "why they could not get a loan from the bank?" If they do not have god credit score of 650 or above I would question the buyer in depth. Many times the buyer is a business owner and needs to provide two years worth of business income before they can qualify for a loan with the bank. Also, the buyer may simply like this investment strategy for the option to negotiated better purchase terms than they could with a bank.


What are your thoughts on this strategy? let me know in the comments!


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