The Downsides of Seller Financing

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There are also downsides with seller financing, the most obvious being the fact that the seller is taking a chance by extending a hefty dose of credit to a borrower whom other lenders have turned down. Buyers also have to be aware of certain challenges of seller financing. Before getting too involved in the process ask yourself the questions below.

Is the property overpriced?

A lender won’t finance a home unless an appraiser determines that it’s worth at least the asking price. Don’t overpay for a home just to get seller financing. If you’re unsure about property values in the area then talk to a real estate professional about having a comparative market analysis or CMA done on the home to determine its fair market value. You can also get a rough idea of a home’s value at certain websites.

Does the property have defects?

Sellers who know their properties won’t qualify for conventional financing are quick to offer financing. To protect yourself conduct inspections and have professionals do the same before committing.

Does the seller expect a balloon payment?

This is a lump sum amount that will come due at some point during the regular course of payments. While right now it may not seem like much of an issue to sign up for a balloon payment of $10,000 or $20,000 in five years, think carefully before committing to such a financing arrangement. It may sound good right now but five years down the road it may not be easy to come up with the hefty sum.

Are the monthly payments too high?

Conventional loans are based upon monthly payments over fifteen or thirty or thirty years. Don’t fall for a seller-financed sale that involves high monthly payments over a short time as you could quickly find yourself in over your head. Instead make sure the payments are appropriate for your financial situation.

Weigh out the pros and cons of seller financing and do your homework before dealing one-on-one with a home owner who is eager to finance your buy. Look at property prices and as an added precaution ask for references obtain legal counsel to ensure that the investment you are making is both solid and beneficial for you as the buyer.

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