Do you think that brick-and-mortar mortgages are the only way to buy a house? Think again. For motivated parties, seller financing offers a wide variety of benefits – for both buyers and sellers.
Ideally, sellers who finance buyers own their homes free and clear or only owe a small amount. Buyers preferably bring excellent credit and a nice down payment to the table, but may be unable to secure a traditional loan, such as self-employed buyers or those who just began a new job.
These deals rarely last longer than 10 years, because sellers usually don’t want the commitment or aggravation of administering the terms of a 30-year mortgage. Following the 10-year – or less – financing period, the buyer refinances into a traditional home loan – a perfectly legal transaction, provided that the parties take appropriate steps.
Most sellers won’t seriously consider financing a mortgage unless the buyer presents compelling reasons to do so. A homeowner who encounters difficulty selling his home may become amenable to financing a buyer just so he can move on with his life. In addition, because seller-financed buyers typically pay high interest rates, the prospect of monetizing a previously nonperforming asset becomes attractive.
When it comes to individual deals, no two are alike. Wise buyers and sellers hire legal representation to draft contracts and advise them with regard to state laws. Parties must record deals with the appropriate local authorities in case of default. And both parties should inspect each other’s credit histories and public records as well as the property’s title.
In successful deals, sellers earn investment interest and buyers attain the full advantage of homeownership. In other words, those that do their homework are party to the dream of homeownership.
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