Home sale payment

Question

My questions refer to real estate in the US.

When the buyer pays cash (i.e. without taking a loan), would it usually mean that the buyer will have to pay the whole amount in a single payment? Or is it acceptable to first pay a certain initial payment, and then the rest of the amount in monthly installments? Is the latter the same as seller financing?

What happens when the buyer uses an external lender, e.g. a bank? Does the bank pay the seller the whole sale amount at once, which makes the bank the house owner, and then the buyer has to pay the loan to the bank in monthly installments? Or does the bank pay the seller monthly payments?
Who legally owns the house until the loan is fully paid?

Considering the answers for (1) and (2), why do sellers prefer no-loan (cash) buyers over loan-financed buyers, and often agree to lower the price for cash buyers? Isn't the seller paid the whole amount at once, regardless of what buyer type it is? I would assume that sellers prefer no-loan buyers, because this way the seller gets a larger amount of immediate cash. But if the buyer gets the whole amount immediately, regardless of the buyer type, this preference for no-loan buyers does not make much sense.

D Stanley · Accepted Answer

When the buyer pays cash (i.e. without taking a loan), would it usually mean that the buyer will have to pay the whole amount in a single payment?

Single payment

Or is it acceptable to first pay a certain initial payment, and then the rest of the amount in monthly installments? Is the latter the same seller financing?

Yes, that is basically seller-financing. In that scenario, the seller should file a lien on the property (so they can't sell or transfer it without paying the loan off first, or as a condition of the sale) and have the necessary legal paperwork to set up the loan.

What happens when the buyer uses an external lender, e.g. a bank? Does the bank pay the seller the whole sale amount at once, which makes the bank the house owner, and then the buyer has to pay the loan to the bank in monthly installments? Or does the bank pay the seller monthly payments?
Who legally owns the house until the loan is fully paid?

When there is a mortgage on the house, the buyer still legally owns the house but there is a lien on the house which prevents the owner from selling or transferring the title until the lienholder is paid off. At the closing of the sale you (the seller) will be paid the full amount due at closing, typically in a form of a cashier's check or wire from the bank

Considering the answers for (1) and (2), why do sellers prefer no-loan (cash) buyers over loan-financed buyers, and often agree to lower the price for cash buyers? Isn't the seller paid the whole amount at once, regardless of what buyer type it is?

The closing process is generally simpler (and thus slightly cheaper) with a cash offer, and if there's not a bank providing funds, there are less roadblocks, making for a smooth closing. If the buyers are getting a loan, any hiccup in the loan process is time wasted by the seller, and if the loan falls through completely, then the closing can fall apart as well.
Yes, the seller gets the funds all at once in either case, but it's not so much about the final amount at closing as the simplicity of the closing and the increased possibility of a successful sale.

Hart CO · Answer

Regardless of whether it's cash or financed, the seller (and lien holders) get paid the entire amount at closing in standard arrangements.
The reason people prefer cash offers is that purchase offers using financing will have multiple contingencies. The primary reasons the deal can fall through or need to be re-negotiated are if the property's appraisal value is less than the offer (lenders are at increased risk if you start off underwater by overpaying) or if something happens and the buyer no longer qualifies for financing (job loss, change in credit score, etc.).
If someone has cash in hand to buy it outright, there's less risk of the deal falling through. Since the majority of home sellers are also buying at the same time, timeliness of the sale is often important.

armitage · Answer

In general

When a buyer pays in cash they have to pay the full amount in a single payment. Sellers Finance is when seller (owner) arranges the finance for the buyer instead of the buyer arranging finance from a traditional lender such as a bank.
When using a bank , the bank pays the seller the entire amount up front.For instance the seller is selling a house for $100,000. The buyer borrows $100,000 at an APR of 3% over 30 years. The bank pays the seller the $100,000 and the buyer pays back the bank $421.60 every month for the next 30 years. The total paid back is $151,777.45. The bank makes a profit of $51,777.45. In terms of ownership the bank generally owns the property even though you may be the registered owner. It can vary state to state.
Cash buyers are generally preferred as they have easy access to cash to pay for the house by simply writing a check thus speeding up the sale. Mortgage buyers though are dependant on the lender appraising the home ( can take up to 60 days) and they may deny the mortgage.

Home sale payment

3 Answers

Add your own answers!

Ask a Question