Before the days of banks and mortgage lenders, a family had three choices if they wanted to become homeowners. They could build a home on their family’s land or on land they saved up for, they could scrimp and save to come up with the money to purchase a home, or they could work out payments with the seller. While seller financing may not be as common today as it once was, it can be a highly beneficial option for both buyers and sellers.
Buyer Benefits of Seller Financing
- Better interest rate – You may find that a seller is willing to provide seller financing at a lower interest rate than conventional mortgage companies because they don’t have the overhead or other financial demands that they have.
- Better terms – If you are looking for something more flexible, such as a loan that starts off as interest-only or has a shorter or longer payback period, seller financing can be the only solution.
- Creditworthiness issues – If you have been turned down by conventional financing, you may find a seller who is willing to overlook certain credit concerns that a mortgage company won’t.
- Not reported to credit bureaus – If you have a reason why you’d rather your mortgage didn’t get reported, seller financing is the way to go.
Seller Benefits of Seller Financing
- Better interest rate – If you would only be putting the proceeds into a savings account or other investment with a low rate of return, you could do better by agreeing to seller financing.
- Secured investment – If you aren’t comfortable with the potential to lose your investment by entering the stock market or investing in other options, consider seller financing because if the buyer doesn’t pay, you just take back the property and can sell it again. Be sure to get a down payment so you have funds to handle a foreclosure.
- Goodwill – You can feel good about helping someone in your community become a homeowner that perhaps wouldn’t have been able to do it any other way except with seller financing.
Potential to spread gain – Consult with your CPA to determine if spreading the gain on the sale over several years rather than needing to claim in one year would be beneficial to you.