Seller financing is a viable option for buyers who do not qualify for conventional loans or have trouble meeting the purchase price on a home; this is also known as a purchase money mortgage. Seller financing differs from conventional loans in that the seller does not actually give the buyer money like lenders do. Instead, the seller issues a credit against the price of the home and the buyer agrees to pay the seller directly each month according to an upfront agreement. In today's slow real estate market, lenders are very cautious about making loans and sellers are becoming more inclined to seller financing as a way to move their properties. The benefits of seller financing can be significant to both the buyer and seller. For the seller, in return for helping the buyer finance the purchase of the home, they have the ability to receive tax benefits. Offering the option of seller financing also attracts a wider group of potential buyers and generally sells the home faster at a better price. Moreover, the seller also receives interest earnings from the buyer. To the buyer, benefits from seller financing can offer less stringent qualification standards and money saved from avoiding costly loan fees. The risk to the seller is virtually the same as the risk to conventional lenders. Sellers can reduce their risk by running a full credit check on the borrower, requiring hazard insurance on the property and including a due-on-sale clause. Also, there are financing, disclosure and repayment-term requirements that need to be met. It is a good idea to consult with an attorney when putting together this type of deal. (Written by: K. Skowronski) |
