Seller financing is an option for buyers and sellers to work together without a traditional mortgage. Also called owner financing, this type of financing involves the seller providing funding for the home in the form of credit.
Since sellers are often more flexible with financial requirements than banks, this can be an excellent option for a buyer with subpar credit or other financial issues.
Here is some more important information about seller financing arrangements:
How does seller financing work?
In seller financing, the seller acts as the mortgage lender rather than a bank or financial institution. There are typically fewer closing costs involved and different requirements for home appraisals.
Types of seller financing agreements
Different types of agreements are available to fit a wide range of scenarios. The most common types are:
- Land contract.
- Assumable mortgage.
- Lease purchase agreement.
- Land loan.
- Holding a mortgage loan.
Mechanics of seller financing
In a seller financing agreement, both buyer and seller sign a promissory note with the specific terms of the loan. The buyer pays the amount back with an agreed upon amortization schedule, usually with interest. A seller financing deal often offers the short-term option of requiring a balloon payment within the first several years.
Tips to reduce the seller's risk
Just like a bank or mortgage lender, you take a risk when offering a seller financing agreement. If the buyer defaults on payment, you could be subject to serious legal fees. However, there are some steps you can take to serious legal fees. However, there are some steps you can take to reduce your risk as the lender and seller:
- Require at least a 10% down payment.
- Use a complete loan application just like a traditional lender would require.
- Work with a real estate attorney & knowledgeable real estate agent for help during the process.
Is seller financing a good way to sell your home? If you've paid off your existing mortgage, it can be a great way to make a sale in a tough market. However, many sellers would rather not take the risks. Ultimately, you'll have to weigh the pros and cons in your specific situation.
About the Author
Richard Powers
Born and raised in Lynn, Massachusetts, Richard has been a successful Real Estate Agent, specializing in the Greater Lynn area for 28 years. He was awarded the prestigious Centurion Award for 19 years in honor of his outstanding number of listings and sales and was the recipient of numerous Diamond Awards for exceptional sales and service.
In his spare time, Rich enjoys golfing, hiking with his dogs and practicing Karate, in which he holds a second-degree black belt. He also enjoys volunteering for various animal rescue groups with his wife of 33 years and is especially dedicated to supporting Faithful Companions, a local non-profit group that helps families in need receive life saving veterinary treatment for their cherished pets.
The next time you need an experienced Real Estate Agent, be sure to give Rich a call. His professionalism and knowledge of the Real Estate Industry are unrivaled.
