Seller Financing – Is It A Good Thing?

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Depending on your financial situation there are both pros and cons of using seller financing. Below are the positives that you can expect from this financing strategy.

Easier Qualification

Buyers who don’t meet the sometimes rigid requirements necessary to qualify for a conventional mortgage can use seller financing as an option. For example, while conventional lenders put a lot of weight on credit ratings, a low credit score does not always mean the borrower is a credit risk. A past bankruptcy, a job layoff that resulted in a few bills left unpaid several years ago, or a divorce can all have adverse effects on a person’s FICO score. If you have experienced such challenges, seller financing can give you the opportunity to purchase a home.

Flexibility

Sellers financing can be conducted on terms that are completely negotiable between the two parties unlike a typical mortgage. There may or may not be a credit check and the down payment will be negotiable as will the length and structure of the loan. For example if you know that your financial picture is going to improve over the next three years you might negotiate a small down payment, low monthly payments for the first five years then a larger balloon payment down the road. Who knows that by then you may be able to finance the rest of the purchase through a traditional lender at a favorable rate?

Cost Savings

Bank loan origination fees can be hefty but seller financing basically eliminates such fees which can save you 4 to 10 percent of the total loan price. You can also save on monthly mortgage insurance fees additional closing costs like loan fees. As for the interest rate it will likely be higher than current market rates because sellers are looking for a return similar to what they would get from investing the sale’s proceeds.

Time Savings

Seller-financed transactions can close quickly as long as both parties agree to the terms. Such transactions eliminate the bureaucracy and paperwork that lenders require making the path to the closing table that much shorter.

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