Think about the situation where you want to sell your house. Maybe you’ve found a new place that you really like, or you need to move to a different area. Naturally, you’d want to sell your current home quickly so you can move on. However, financial issues can be a problem for potential buyers. Should you help them with financing? And what can you do if traditional or online loans aren’t an option? Consider these points before deciding.
Seller financing means you, the seller, lend money to the buyer instead of them getting a loan from the bank. The buyer makes a down payment and then pays you in monthly installments at an agreed interest rate. This can be beneficial for buyers who don’t have a good enough credit score to get a bank or online loan.
From your perspective as the seller, your return is ensured since it’s backed by the home you sold. If the buyer defaults on their loan, you have the option to foreclose or repossess the property, just like a bank would. In that case, you keep the down payment and any payments made before defaulting.
While being able to “carry” the buyer’s loan can be financially rewarding, it does come with risks. Even with a good agreement, there’s no absolute guarantee that the buyer will honor their commitment. Be prepared for the possibility of a default. If they stop making payments, you have to follow legal procedures to evict them, which can be time-consuming.
Imagine a situation where an eviction or repossession takes more than a year to complete before you can regain possession of your property. During this period, you’re not getting any payments and losing money. Additionally, if the buyer couldn’t get a bank loan, there might be a reason for that, which you may not be aware of, potentially leading to further complications.
If the buyer defaults and you manage to evict them, you might not know what condition the property is in. Seller financing ties up a lot of your money and, unlike a direct sale which gives you a lump sum, you receive payments over many years, including interest.