Seller held financing is definitely a viable option in today’s world of real estate, especially if the market is soft. While there is a pretty large amount of risk for the seller through this method, it is a better situation than they are currently in. The biggest risk for the seller is if you (the buyer) should default on the loan.
There are many advantages to the seller financing scenario as well. The first is that it presents a way for the buyer and seller to close on a deal that may not otherwise be possible with conventional financing. Secondly, as a buyer, if you are qualified but have a low credit score, banks may not be willing to loan even if you have the means to make the payment.
Owner financing also helps the seller who is trying to offload the property, although they still have some responsibility with the seller financing scenario, there mind is put at ease a little bit as well as their pocket book. What I mean by the pocket book is that the seller is able to see a higher rate of return on the loan and actually make a little bit of money in this scenario. The seller may also be able to realize a higher sales price for the property by offering seller financing.
Seller financing typically involves a shorter timeline than that of a conventional loan. By utilizing seller financing there is also a tax incentive to the seller if they can spread out a large gain over time rather than just earn one lump sum from the sale of the property.
Reasons why a seller may offer owner financing:
- To get a down payment in order to purchase another property
- To pay down debt
- In order to get full asking price
- Differentiate the property from others on the market and potentially get it sold faster
- To cover the monthly expense of owning the property
- Defer a tax bill
Reasons why a buyer may want to utilize seller financing:
- Lower closing costs
- Faster closing process
- Flexibility of down payment amount
- To attain rental properties or longer-term holds
We’ve covered this before, but let me just bring it up again: Developing a relationship with the seller is of utmost importance, especially if you are considering asking for seller financing. This will make them more receptive to hearing your proposed bid and terms and working with you in the financing of the property.