Seller Financing
A seller can help to finance a real estate transaction for a buyer in one of two ways. The first is by taking back a second note, the second by financing the entire purchase (assuming that the seller owns the home completely).
Why A Seller May Help A Buyer
The reason why a seller may help the buyer by offering seller financing is when a buyer has difficulty qualifying for a loan or meeting the purchase price. Seller financing generally differs from a loan in that the seller does not give the buyer actual cash to complete the purchase, as does a normal lender.
The idea behind seller financing is that there is a continuing credit against the purchase price of the home while the buyer carries payments to the seller. The interest rate on an owner-carried loan is negotiable and normally you should determine the current rate on institutional first, or second, loans before agreeing to the interest rate. Although fear of default makes some sellers reluctant to take back a second mortgage, seller financing can bring a higher price, as well as completing the sale of the property sooner.
Costs
Seller financing generally costs less than usual financing as sellers dont charge loan fees, however current treasury bills will influence the Interest rates on an owner-carried loan.
Even though the obvious benefit of seller finance lies in the fact that the home seller is able to sell their home via this route there are also other benefits that can be gained from seller financing of the buyer. These benefits include seller tax breaks.
No matter who the buyer is, you should always ask yourself questions regarding the credit risk of the borrower and the value of the property hold enough value over time to allow for the repayment of all loans made against it.
