Starting Over.

Many Chico area families who have either recently lost their home to foreclosure or short-sale, or are expecting too, are left wondering “what do we do next”? With home-ownership a thing of the past and credit red-lined for a minimum of 3-7 years most return rather dejectedly to renting a home or apartment. For those determined to begin anew in the home ownership game there is one option…seller financing.

With housing prices so low, the best time for buyers to get back into ownership is now, just when they’re still reeling from losing their home. By purchasing now, with values down as much as 40-50% there is actually a chance of building equity again, a condition that has not existed for about 4 years locally. With their credit shot - seller financing is likely their sole method of getting back into the game.

It may be a tough sell but it’s possible. With gobs of homes on the market and prices low, sellers who own their home free-and-clear have the ability to carry a personal loan and may find it to be one way to move their property or to compete with low priced bank-owned homes. With so much coverage of unemployment, income reduction and the huge number of foreclosures, sellers may also be more apt to understand the circumstances behind a buyer’s recent default. One of the keys is for the buyers to be completely upfront and honest about their situation.

Did the default happen because of a predatory loan? A reduction in income? A temporary job loss? Have most of those issues been resolved? Does the monthly cost of the home they’ll be buying fit within their revised budget? Was their credit good before their job loss or change of income? It is to their advantage to offer the answers to all of these questions right alongside their offer to purchase. Overcoming the seller’s reluctance to work with the buyer by honestly explaining the circumstances behind their default may be just what it takes to get them on the buyers side. A Realtor can help by explaining the benefits to the seller.

Down payment may be a problem. Most people who have recently defaulted on their homes are unlikely to have the standard 20% down payment many sellers may require. Aside from borrowing the money from sympathetic family or friends, perhaps the seller would consider a smaller down (e.g.5-10%) and/or a staggered down payment. Let’s say the seller agrees to a $10,000 down payment, might they also agree to letting the buyer make four installments of $2500, two before allowing the escrow to close the escrow and two more within 60 days after the close? It’s worth trying…we’ve seen it work!

Few listed properties advertise that the seller will carry so buyers should ask their Realtor to enquire about seller financing for homes in their target price range (a buyer should figure out what they can afford in monthly payments and work backwards to arrive at price), some listings state whether the home is owned free and clear or encumbered. To keep payments very low while getting their foot back in the door of ownership – buyers should consider older manufactured homes on land. Pre-1979 mobiles can not be financed commercially, thus the owners generally MUST carry the financing.


Advice to buyers in this situation: Keep trying, if they can demonstrate that they were a reliable mortgagee before their financial problems, can earn a seller’s trust, and are being realistic about the amount they can afford, eventually they should be able to find a seller willing to give them a chance!