In the early 2000’s, banks granted many loans to so many people who could not afford the houses they were purchasing. Looking back now, one could clearly see that a family of four making $45,000 would not be able to afford a $300,000 house. Yet, lending requirements were loose and cases such as this were common. After the market crash of 2007, banks tightened their requirements and it became harder for people to get a loan.
The purchase of owning your own home as always been the American dream. Saving money from each and every paycheck towards the down payment is possible but to save for the whole payment of a house, it is not realistic for many people. If one does have cash for the outright purchase of a house, sometimes having cash has more benefits than a loan. A lower purchase price might be negotiated with the seller, and many times the sale will close quickly with cash.
Another option in buying a house if one does not have all the cash and one does not want to go to a bank for a loan or has been turned down by a bank for a loan, is to use seller financing. Seller financing is when the seller of the house acts like the bank. That is, the seller is the one who agrees to provide the loan to the buyer. The agreement will still include all the terms that a bank provides such as interest rate, and monthly payment. This agreement that secures the loan is called a promissory note.
Promissory notes are written promises to pay a sum of money to the specified bearer at a certain future time. It may include interest rates with length of time to fulfill the promise. The property is the security of the loan. It is signed by both parties.
The seller benefits in that he/she will receive monthly income with interest. The income is passive with no obligation for the seller to now take care of the property to include repairs, taxes, and insurance. And just as bank can foreclose on a property should the buyer stop making payments, so can the seller.
When the seller no longer wants the burden of holding the note, he/she can sell the note to another party receiving a lump sum for the purchase and responsibility of that property/note.
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Whether you are looking to sell a house without the hassles of going through a traditional bank, a note is very viable option for all parties involved.
