Q. So, what exactly is seller financing?
A. Seller financing is when the seller of a property takes on the role of a bank and gives you a mortgage for their property. So instead of going the usual route of obtaining a mortgage from an institutional lender, you would negotiation a payment plan with the seller.
Q. As a buyer, why would I want to consider this type of purchase?
A: No playing by Bank of America’s or (insert your least favorite bank’s name here) rules. If your friends refer to you as the “control-freak” in the group, you get to call the shots here. Rates, payment terms, etcetera.
Q. What if the buyer has not-so-pretty credit? What if a traditional lender would raise eyebrows over my qualifications?
A. Again, the parties get to negotiate the terms. Most sellers will want to know that you have an ability to pay the mortgage. That’s it. While there are many scenarios that seller financing works well for, one of the most common circumstances under which seller financing is utilized is when a buyer needs a few years to repair bad credit but is otherwise qualified to own.
Q. Sounds…Risky! Weird! As a seller, why the heck would I do something like this?
A: Seller financing is LUCRATIVE! Think about this. Banks give out loans only to make money. A lot of money. There are many other reasons why seller financing is attractive to sellers (no appraisal issues, you can be firmer on your price, ability to sell properties that don’t quality for traditional financing- hello CONDOS), but making more money should be enough to convince any seller to consider this route.
Q. How is this different from a rent-to-own scenario?
A. You actually OWN the home. I.E. hello tax benefits! Rent-to-own is still just a glorified rental. While rent-to-own scenarios are a great option for some, I am not sure why rent-to-own is the more frequently heard “word on the street,” right now. If both parties are ready to commit – the extra step into seller financing makes a lot more sense financially for both sides.
Final note: There is a right, and a wrong way to do everything. Seller Financing is a great option when you work with professionals, adhere to all state and federal rules and regulations, and take all appropriate measures to ensure a successful, mutually beneficial and enforceable transaction.
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