Would you give Seller Financing a Shot?

What is seller financing?

Instead of getting a lump sum when the sale closes, the seller accepts the buyer’s covering terms such as the loan rate, the years the loan will be in effect, and the monthly payment. Seller financing can work well for both the seller and buyer, the terms need to be studied closely and they have to be sure to understand them.

From a seller’s point of view, usually in seller-financed deals, the seller provides the only financing the buyer needs if they were to purchase the property. A cash down payment could be demanded by some sellers, but others will finance the entire purchase.

In other situations, a deal to cover the down payment is provided by the seller, with the buyer using a regular mortgage for the bulk of the purchase price. If a buyer cannot afford a down payment, this makes it possible to be able to sell to them. In deals like these, the buyers’ ordinary mortgage lender typically demands that the seller’s loan be subordinate to the lenders’. If there were to be a foreclosure, the mortgage lender must get all it is owed before the seller or financer receives anything.

 

Seller financing pros for sellers:

The purchase of the property may be made sooner than it would have originally been, and the seller may be able to set a higher loan rate than if they cashes out and put the sale proceeds in an interest-bearing account.

Seller financing cons for sellers:

Instead of getting a lump sum, the seller gets a string of payments for a number of years. At the start, the interest earning may seem high, but they would be disappointing if the prevailing rates were to rise.

Here are some considerations for sellers:

• If there is still a sizeable mortgage, the seller’s lender will have to sign off on the deal. Seller financing is most common when the seller owns the property or owes an amount that can be paid off with the buyer’s down payment.




• A thorough loan application should be required by the seller from the buyer and the buyer’s assets, income sources, credit history, employment and references should be checked.




• A real-estate lawyer should be hired, by both the buyer and seller, to go through the paperwork.




• The seller should consider hiring a loan-servicing company to collect payments and deal with the buyer.

Seller financing may open new doors to the deal for both the seller and buyer.