You may have used this buying option or heard of it before - when the property developer offers you the installment payment plan, usually 2-5 years to repay in full -- that's exactly that. The property owner and lender are the same entity, eliminating the middle-man role of the bank lender (it's not the bank's business to sell property, albeit that's gradually changing in developments markets, post 2008 GFC).
Seller-Financed Mortgage (SFM) can also be know as Seller Financing or Owner Financing, or Purchase Money Mortgage or Wraparound Mortgage.
SFM typically involves two main parties (lender / property vendor + property buyer) as against three parties (lender + property vendor + property buyer) that exist with a traditional mortgage. However, much of the structure associated with a traditional mortgage may still exist with an SFM. Seller-Financed mortgages remain rare options in today’s housing market because almost all property developers build with bank loan or from some other borrowed funds. DCANS Mortgage and/or any of its home providers do not build or lend with bank or borrowed funds - We underwrite this SFM with our own funds and not funds from the general public.
Note: We only underwrite owner-occupier residential mortgages as Seller-Financed Mortgage. Buy-to-Let mortgages and other mortgages are either financed as SFM (if the property is owned by any of our -in-house property providers) or as commercial mortgage.
How it works
Seller financing works similarly to any mortgage transaction with the exception that the seller (in this case DCANS Mortgage) is extending you the financing rather than another lender or bank. Unlike a traditional mortgage closing, the only money the seller receives at closing is whatever amount was negotiated for a down payment, if any.
When financed by an SFM, the consequences of default may be laid out in a promissory note or in a separate document. If you don’t have the money to make a balloon payment when it comes due, people with improved credit will refinance the cost into a traditional mortgage.
Transaction Structures
The commonality here is that in many aspects, SFM functions like traditional financing. All houses to be mortgages are always owned free and clear by DCANS Mortgage and/or its in-house providers before mortgage paperwork are completed. We (the seller via the SFM structure) and buyer work out the terms of a down payment, final purchase price (when the loan will be paid off) and interest rate.
It’s important to note that all our mortgages contain a “due on sale clause.” This means that as soon as the property is sold on by the mortgage holder, we will demand payment.
It’s important to also note that, you don’t get the title right away. Rather, DCANS Mortgage (seller) holds the legal title to the property, which is given to you once the seller is fully paid off. While you don’t get the legal title immediately, you do gain equitable title. This means that with each payment you make to the seller, you gain financial equity in the property.
SFM Benefits
• It allows prospective homebuyers who might not otherwise qualify for a bank mortgage the ability to get a mortgage. Those with damaged credit or a short credit history might not qualify for a traditional mortgage but qualify with us.
• The closing process may be quicker and cheaper.
• Down payment amounts are negotiable with seller financing in a way that they usually aren’t when it comes to traditional mortgages.
Seller-Financed Mortgage Example
Here's how a seller-financed mortgage works: Say you want to buy your home for GHS225,000. You agree to home price of GHS225,000, but these buyers can't qualify for a loan from a traditional bank. A seller-financed mortgage via DCANS Mortgage can allow you to close the deal. The buyer, then, may have to come up with a down payment of GHS10,000 and then borrow the remaining GHS215,000 of the home price in a seller-financed mortgage from DCANS Mortgage (Seller-Lender).
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