Seller Financing

As per the selling financing definition, it is referred to as a type of Real Estate agreement in which the seller is responsible for handling the given mortgage process rather than some financial institution. Rather than applying for the traditional Bank mortgage, the buyer goes ahead with signing the mortgage with the respective seller.

Seller financing is also known to go by the name as owner financing. It is regarded as the purchase-money mortgage.

Working of Seller Financing

Buyers who are attracted to the concept of seller financing are mostly the individuals who find it difficult to get access to some traditional loan –maybe because of poor credit. In comparison to the bank mortgage, the concept of seller financing is known to comprise minimal or null closing costs. At the same time, it might not require any appraisal. Sellers tend to be more flexible in comparison to the bank with respect to the down payment amount. Moreover, the overall process of seller financing tends to be quicker –mostly settling down within a span of a week.

For sellers, the financing process of the mortgage of the buyers tends to be making it highly simpler when it comes to selling the house. During the scenario of a slow real estate Market, and when the respective credits tend to be tight, the buyers tend to prefer the process of seller financing. At the same time, the sellers can also go ahead with expecting to receive some premium for providing finance. This implies that they might prefer getting the respective asking price in the market of the buyers.

The process of seller financing is known to rise as well as fall in the overall popularity in addition to the overall tightness of the given credit market. At times when the banks would be risk-averse while being reluctant to give out money to any entity –only except for highly creditworthy borrowers, the process of seller financing can help in making it possible for most individuals to consider buying homes. Moreover, selling financing is also known to make the process of selling a home easier.

Alternatively, when the credit markets tend to be loose, and banks might be enthusiastically giving away money, the concept of seller financing tends to have minimal appeal.

Demerits of Seller Financing

One of the primary demerits for buyers is they will be bound to pay higher rates of interest in comparison to the market-rate mortgage from the given bank. Financial institutions out there tend to have higher flexibility in altering the rate of interest charged by providing access to non-traditional loans.

On a long-term Basis, the higher interest as offered by the seller could end up wiping out the total savings that had been gained from ignoring the closing costs. As such, the buyers will still be required to determine the respective ability to pay the loan amount back.