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Don't Have the Cash for a Traditional Loan? 

You could consider seller financing options

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The housing crisis provided many opportunities for investors to purchase distressed properties at bargain prices and hold them as rentals or flip them at a higher price to a buyer unable to qualify for a loan at the time. This was evident with the increase in rent-to-buy homes and other seller financing options.

In a contract for a deed, the buyer does not own the home until the loan is paid off. This is done typically by the buyer refinancing at a future date. The terms of such contracts are typically 1-5 years. The other catch is that sellers can often evict buyers within 30-60 days for default. Typically these loans have a higher interest rate, with 7.5-10 percent not being uncommon. This can be a great temporary solution for a homebuyer who doesn't currently qualify for a traditional loan, and sellers or investors who want to flip their inventories at maximum price and continue to earn a nice rate of return for the contract period. The drawbacks to the buyer are the higher interest rates and the fact that you can lose the investment of your higher monthly payments in case of job loss or medical emergencies.

Rent-to-own contracts have similar provisions, in which buyers pay monthly rent plus an extra amount to be applied to the purchase of the home at an agreed upon future selling price—also typically within 1-5 years. In both scenarios, the purchaser usually has a higher monthly payment than current rents and loses everything if they can't follow through with refinancing. It is easy to see how this can be a form of extorting even higher rents by unscrupulous investors. Taking this further, these types of contracts could be a way of getting around rent control regulations by masking rent extortion as a mortgage contract payment.

There are occasionally deals where an owner is willing to carry for a few years at a more reasonable rate, like 6 percent with 10 or 20 percent down. Such sellers typically want to obtain maximum price and earn more than they can get in a savings or money market account. There can be tax deferral advantages because instead of recognizing the full gain on sale in the year of the contract, they can defer it on the basis of how much they collect each year as an installment contract. The advantage to the buyer is that the interest rate is reasonable and they really are owners, with the only difference being that the seller instead of the bank holds the mortgage. There are not many deals like this available, and when they come on the market, they go fast. The important thing to consider in any seller financing is that buyers will typically end up paying the highest market price for seller-financed properties in return for the seller's risk in carrying a note or contract.

Housing Round-up

LOW

1213 NE Eighth St., Bend, OR 97701

3 beds, 2 baths, 1,028 square feet,

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.17 acre lot | Built in 1956

$175,000

Listed by Windermere Central Oregon

MID

1340 NE Dempsey Dr., Bend, OR 97701

4 beds, 2 baths, 1,480 square feet,

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.18 acre lot | Built in 1964

$314,900

Listed by Northwest Homes and Land

HIGH

19909 Ashwood Dr., Bend, OR 97702

3 beds, 2.5 baths, 2,396 square feet,

.26 acre lot | Built in 2011

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$898,000

Listed by The Hasson Company

Photos and listing info from Central Oregon Multiple Listing Service

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