Consider the scenario where you’re eager to sell your house. Maybe another property appeals to you, or you need to shift locations. It’s natural that you’d want to expedite the sale so you can proceed. However, financial setbacks can troublesome for potential buyers. Is it worth helping them secure financing? And what steps can you take if traditional or online loans are not an option? Ponder on these factors before making your final decision.
Seller financing is when you, as the seller, lend to the buyer in lieu of a bank. They offer you a down payment and continue to pay monthly installments with a mutually agreed interest rate. This setup can work to the advantage of buyers lacking a satisfactory credit score needed for a bank or online loan approval.
As for you, the seller, your return is assured, as it’s backed by the home that you’ve sold. In case the buyer defaults on their loan, just as with bank or online loans, you retain the option to proceed with foreclosure or repossession, reclaiming the property for resale. In such a case, you retain the down payment and all preceding payment installments that were made on the property.
The capability to “carry” the buyer’s loan has its upsides, financially speaking, but isn’t without drawbacks. Even a reciprocal agreement provides no guarantee against a party failing to honor their part. Unfortunately, you must be ready for a potential default scenario. If payments suddenly stop, a due process must be followed – you can’t simply evict them.
Consider the sorry state of affairs where an eviction or repossession takes over a year to finalize as you wait to reclaim your property. Throughout this time, you’re missing out on payments and losing money. Furthermore, if the buyer was turned down for a bank loan, there must be a legitimate reason – you might not even know what that is and could be landing yourself in trouble.
Should the buyer default and you successfully evict them, you’re left clueless about the state of the car. Seller financing, while an investment, can tie up significant funds. Selling traditionally would give you a lump sum immediately. In contrast, you’re looking at a gradual return over several years or decades with seller financing, notwithstanding the interest.
