What is Seller Finance?
Can you buy property with Low or no Deposits, No Mortgage and Little or no Interest payments?
Are you a potential homebuyer having trouble securing financing?
Are you a homeowner who wants to sell but is having trouble finding a buyer?
Seller Finance could be what you are looking for!
As a buyer, getting a mortgage can be difficult if your financial situation isn’t compatible with the mortgage lenders requirements — a regular wage that can be documented, a stable employment history with no interruptions and a gleaming credit score.
As a property vendor, selling your home can be difficult. Especially, when buyers are having trouble getting approval for loans from the Banks? Wouldn’t it be great if you could take out the middleman, The banks, and find another way to complete the transaction?
In this article, we’ll focus on a little-known option called—seller financing.
How Does Seller Financing Work?
Seller financing is just what it sounds like: instead of the buyer getting a loan from the bank, the person selling the house “lends” the buyer the money for the purchase. Don’t worry you don’t have to be as rich as a bank to “lend” the money. As the seller of the property, owns the property, they allow the buyer to have credit for a period of time. The buyer then pays the seller in instalments, just like you would do with a Bank.
The buyer and seller negotiate a contract, agreeing on some of the following details.
- Providing an interest rate. (This is not always included, as it can discourage buyers)
- repayment schedule. (How long the seller can wait for their money. The longer this period the more buyers are attracted)
- consequences of default. (Both parties agree on what will happen in the case of default)
Seller financing arrangements can be spread over periods the seller is comfortable with. There are times where a balloon payment is due at the end, but we try to avoid that if possible.
Seller financing tends to be more common in markets where mortgages are hard to come by. The reasons for this:
- In a market where mortgages are easy to get, most sellers will opt for the traditional Bank mortgage route to sell their property. There would be no reason to finance the sale yourself as there would be plenty of buyers in the marketplace.
- When Banks are making it difficult for people to get a mortgage, Seller Finance is is a great strategy. People that can afford to pay a mortgage but can’t get one because of the stricter rules, are desperate to buy. Using the Seller Finance Model they can. Sellers desperate to sell their property in times like these can also sell their properties quicker. If they are willing to use the Seller Finance Model.
- Seller Finance also works very well with the Holiday Home market. Holiday homes are a luxury that not all can afford. Usually, these are bought and paid for in full, so no need for a mortgage. When you come to sell the property, chances are that you will need to find someone that has the full money available to purchase it. Mortgages in another country are notoriously difficult to get and if you are able to get one chances are it is very expensive.
- When credit is tight, selling becomes more difficult, so home sellers are more likely to consider alternative options.
Why Is Seller Financing not common?
If you’re a seller, your first objection to this arrangement might be, “But I don’t have the money to lend to a buyer!” Your second objection might be, “I don’t want to become a lender. It’s too risky.” Another reason why seller financing is not that common is that most sellers need the full proceeds from the sale of their home to purchase their next home.
The other reason seller financing is uncommon is that people aren’t familiar with it.
There are actually dozens of other ways to buy property: lease-option, lease-purchase, land contract, contract for deed, equity sharing, wrap mortgages – and the list goes on and on. Most buyers, and most real estate agents, don’t know how any of these work. Sign up to our web site and we will keep you up to date.
Why Would a Seller Offer Financing?
A home seller might be willing to offer financing for a number of reasons:
- to distinguish the property from other listings and get it sold faster, especially in a down market
- to increase the possibility of garnering the home’s full asking price
- to get a down payment to buy another property
- to pay down debt
- to ditch the monthly expense associated with owning the house.
In other words, seller financing doesn’t just benefit buyers who don’t qualify for (or don’t want) traditional financing. It also benefits sellers, especially those who are particularly motivated to sell their homes.
Advantages for Buyers
Seller financing has many advantages for buyers:
- The closing process can be faster.
Prudent buyers and lenders will always use the closing period to perform their due diligence. But with seller financing, the closing process can be faster. With seller financing, the deal closes faster as there is no waiting for the bank mortgage to process the loan, or the underwriter and legal department to clear the file.
- Closing costs are lower.
Buyers love [seller financing] because they can get in the home for less money. They do not have to pay the bank fees and the survey costs.
- The Deposit amount can be extremely flexible.
Instead of having to meet a bank or government-mandated minimum, the deposit amount can be whatever the seller and buyer agree to. This does not necessarily mean that the seller will accept a down payment that is lower than what the buyer would be required to pay elsewhere, but it’s always a possibility.
- No Interest payments.
The biggest advantage of Seller Finance is that you are not worrying about interest rates. You pay the agreed principle amount over the period of time agreed, nothing more.
Please note that when you enter into purchasing a Seller Financed property, you are entering into an agreement to purchase a property in instalments for a period of time. Any defaults on the agreement will result in you losing your deposit and any monies that you have paid towards the purchase. You do not own the home until you have paid the purchase price in full. This is exactly like a mortgage without using a bank or lender.
Making It Happen
If seller financing appeals to you as a home seller or buyer, how do you make it happen?
- Contact International Property Brokers, we are The Specialists, in alternative strategies for buying and selling international properties.
- If your property hasn’t sold for a while and the leads have dried up, maybe it’s time to look at an alternative option?
- Buyers who are not able to qualify for a mortgage, Seller finance is a great way to buy!
The Bottom Line
There’s more than one way to buy or sell a house. Just because your financial situation is a little more complicated than traditional lenders prefer doesn’t mean you can’t buy. And just because banks aren’t approving borrowers easily doesn’t mean you can’t sell your house quickly — and for what it’s worth. Seller financing might be just the solution you’ve been looking for.