Are you a potential homebuyer having trouble securing financing? Are you a home owner who wants to sell but is having trouble finding a buyer? As a buyer, getting a mortgage can be difficult if your financial situation doesn't fit into neat little boxes - a predictable salary that can be documented with paycheck stubs and W-2 forms, a stable employment history with no interruptions and a gleaming credit score.
Advantages for Buyers
Seller financing has many advantages for buyers:
1. 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.
2. 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 appraisal costs.
3. The down payment amount can be extremely flexible.
Instead of having to meet a bank or government-mandated minimum, the down payment 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.
Disadvantages for Buyers
There are also a few potential problems to consider when investigating the option of using seller financing:
1. Buyers should expect to pay a higher interest rate than they would to a bank.
Buyers will have to pay an interest rate that makes the seller want to lend them money over investing their money elsewhere.
2. Buyers will still have to prove that they are worthy borrowers.
It's one thing if a buyer and seller just want to remove the bank from the equation. However, if a buyer doesn't qualify for a traditional mortgage, there might be a good reason for that and a seller may not want to become that person's lender, either.
3. Buyers need to make sure the seller owns the house free and clear or that the seller's lender agrees to the seller financing transaction. Most mortgages have a due on sale clause that prohibits the seller from selling the home without paying off the mortgage. So if a seller does owner financing and the mortgage company finds out, it will consider the home sold and demand immediate payment of the debt in full, which allows the lender to foreclose.
4. The original seller might sell the promissory note.
It's not really a big deal if this happens, but it means that the person the buyer thinks he will be making his payments to can change. The same thing happens all the time with traditional mortgages.
Bottom Line
There's more than one way to buy or sell a house. Just because your financial situation is a little more complex 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.
Are you a potential homebuyer having trouble securing financing? Are you a home owner who wants to sell but is having trouble finding a buyer? As a buyer, getting a mortgage can be difficult if your financial situation doesn't fit into neat little boxes - a predictable salary that can be documented with paycheck stubs and W-2 forms, a stable employment history with no interruptions and a gleaming credit score.
Advantages for Buyers
Seller financing has many advantages for buyers:
1. 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.
2. 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 appraisal costs.
3. The down payment amount can be extremely flexible.
Instead of having to meet a bank or government-mandated minimum, the down payment 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.
Disadvantages for Buyers
There are also a few potential problems to consider when investigating the option of using seller financing:
1. Buyers should expect to pay a higher interest rate than they would to a bank.
Buyers will have to pay an interest rate that makes the seller want to lend them money over investing their money elsewhere.
2. Buyers will still have to prove that they are worthy borrowers.
It's one thing if a buyer and seller just want to remove the bank from the equation. However, if a buyer doesn't qualify for a traditional mortgage, there might be a good reason for that and a seller may not want to become that person's lender, either.
3. Buyers need to make sure the seller owns the house free and clear or that the seller's lender agrees to the seller financing transaction. Most mortgages have a due on sale clause that prohibits the seller from selling the home without paying off the mortgage. So if a seller does owner financing and the mortgage company finds out, it will consider the home sold and demand immediate payment of the debt in full, which allows the lender to foreclose.
4. The original seller might sell the promissory note.
It's not really a big deal if this happens, but it means that the person the buyer thinks he will be making his payments to can change. The same thing happens all the time with traditional mortgages.
Bottom Line
There's more than one way to buy or sell a house. Just because your financial situation is a little more complex 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.