Buying a Home Under Seller Finance Terms

Buying a home under seller finance terms means that the seller is willing to sell his home making use of the finance that he/she already has in place with their own bank/lender. Flexible terms of sale are improvised using a delayed settlement. There are 2 Rent to Buy type deals that suit sellers selling their homes in this way. Both of these deal types provide the seller with the price that he/she is hoping for/needing to achieve and also provides instant relief from high mortgage repayments. A quick sale can be achieved enabling the seller to move on without wasting months of his/her time. There are no real estate agent fees or commissions to pay either, as middlemen such as real estate agents are not needed or involved.

The first flexible terms of sale that we will explain here is what is known as a License to Occupy. A Contract for Sale is exchanged between the seller and the buyer but there is a delayed settlement of anywhere between 2 to 30 years. The longer the settlement term is, the longer the time frame the buyer has to prepare to obtain bank finance. It is up to the seller and the buyer to agree together upon how long they are both happy to make the term. A License to Occupy does not fall under the Uniform Consumer Credit Code as no interest is charged.The sales price of the property is always documented into the Contract for Sale BEFORE signing - never sign a blank Contract.

Once the sales price is determined, the seller and the buyer agree together upon what the monthly repayments will be. In a License to Occupy, these repayments can be similar to the market rent for similar properties, or the repayments could be the full mortgage repayment. Whatever repayments are agreed upon, these repayments DO NOT come off the purchase price. The only way that repayments come off the purchase price in a License to Occupy is if  the buyer pays over and above the agreed repayment schedule. The extra amount paid DOES come off the purchase price of the property.

In a License to Occupy, the buyer should take a caveat out on the property. Even though a Contract for Sale has been signed and exchanged, the title of the property remains in the sellers name until settlement (whenever the agreed term is due to expire, usually 2 to 7 years). By placing a caveat on the properties title, this protects the buyers interest in the property until the property settles, preventing the seller from on selling the property to a third party.

The deposit required in a License to Occupy can be as little as $10. The buyers credit does not need to be good as no bank finance is needed until the property is due to settle. A License to Occupy gives the buyer time to fix up any credit issues while having entered into a deal providing the opportunity of home ownership. Obviously, the buyer would be looking at making the length of the term go for as long as he/she needed to clear their credit to be able to present themselves to the bank and successfully qualify for bank finance.

The other Rent to Buy deal type that suits this scenario is called a Wrap.  A Wrap is similar to the above. The price of the property is set in today's market and documented into the Contract for Sale.There is an accompanying set of paperwork to the Contract for Sale called an Instalment Terms Contract. An Instalment Terms Contract is the "new" agreement that the seller and the buyer have in place with all terms agreed upon documented therein. Both of these Contracts "wrap" around the sellers own mortgage that they have with their own bank - hence why this deal type is called a Wrap!

Once a buyer enters into a Wrap Contract, they are legally bound and must settle and purchase the property at the end of the term. Wraps are not allowed to be practiced in South Australia - check with your states Department of Fair Trading if you have any concerns.

A Wrap does fall under the Uniform Consumer Credit Code as interest is charged, so therefore the seller is legally required to provide the buyer with statements every 6 months of the repayment schedule.

A Wrap requires a larger deposit than a License to Occupy. The First Home Owners Grant can be used if applicable towards the deposit, but the buyer is also required to bring whatever savings he/she has to the deal as well (usually a good few thousand). Each state of Australia has different rules and guidelines for the release of the First Home Owners Grant in a Wrap - contact your states Office of State Revenue for the relevant information.

The deposit and all repayments come off the loan balance just like in a normal bank loan. It is always a good idea to have the seller fix his/her interest rate with their bank/lender - this way everyone knows exactly what the repayments will be for the term of the deal. The buyer also covers all rates and insurances on the property in a Wrap. Any repairs or improvements that need to be done are also covered by the buyer in a Wrap. This makes way for capital growth which becomes the buyers reward at the end of the deal when the property settles.

These flexible terms of sale deal types provide such great answers to both sides - its amazing how much can be gained from practicing patience using a delayed settlement in a house purchase!

Our DIY Rent to Buy manual explains these Rent to Buy deal types in full. All considerations and steps for implementing these deal types have been included. No longer do renting Australians need to rely on an investor to set up a Rent to Buy deal for them - our manual will enable you to put yourself into your own home without an investors help, saving you tens (if not hundreds) of thousands of dollars.