Given the current state of mortgage regulations, seller financing is becoming an increasingly popular option for new homebuyers. It offers them a chance to get a home loan when a traditional source, such as a bank, will not advance the funds. It gives a seller who has the financial flexibility a way to turn his home into a regular source of monthly payments, giving some financial security that the commodities and stock markets simply do not provide. Whether you are on the buying or selling side, there are several factors when considering Seller Financing Pros and Cons that you will want to consider before entering into this sort of loan agreement.
Seller Financing Advantages for Buyers:
1. Obviously, if you can’t get a bank to lend you money, then getting a loan from the seller is a major plus. Because of the aftermath of the housing collapse of 2008 and 2009, banks have become much more strict about credit scores, income verification and the requirement of a down payment. If you don’t have a 20 percent down payment in hand, then you can get a high ratio loan, but then you’re looking at paying mortgage insurance, which adds up significantly over the life of the loan. Seller financing gets you into your house more quickly.
2. Closing with seller financing often takes place much more quickly. An individual seller won’t take as long to approve the decision to lend you money, and Amansad Financial has the expertise and paperwork ready to facilitate your transaction.
3. If you go through a rent-to-own company to get a house, you run the risk of losing the deposits that you put down. With seller financing, there are none of those deposits to lose.
Seller Financing Pros and Cons for Buyer
Seller Financing Disadvantages for Buyers:
1. With a seller financed loan, you’re going to pay more in interest. This makes sense, because since you aren’t meeting the requirements of a bank, then you are a greater risk than the people who qualify are. Also, the seller doesn’t have hundreds or thousands of loans to provide a hedge against the default of a few of the loans; your loan is the only one that he likely is funding.
2. With a bank loan, you can receive a term for as long as ten years before you go through renewals. It may be difficult to find a seller financing loan that will run that long, because the seller may need his money sooner. Seller financing and other private mortgage lending options generally have shorter terms, ranging from six months to a few years. This does give you time to build up stronger credit and a more regular stream of income, though, so you can take out a bank loan to replace the seller financing loan if the term is shorter.
Pros and Cons of Owner Financing for Seller
Seller Financing Advantages for Sellers:
1. If you have the financial stability, being the lender for a home sale can give you a regular stream of income. Most people aren’t going to be willing to risk losing their home, so they will make sure to pay their mortgage first. If the buyer has a solid job and some money in the bank for a down payment, the risk of default is generally much less than the risk of losing money in the financial markets. You can move into your new home and turn the old one into a monthly check.
2. The interest rates on seller financing loans are not as high as those associated with the riskiest investments in the stock markets, but they are significantly higher than secure forms of investment like certificates of deposit, money market accounts and government backed securities. This provides your portfolio with a bit more heft each quarter while adding much less risk than market-based investments do.
3. If you rent your home out, you are subject to the Landlord Tenancy laws that usually favor tenants in cases involving disputes. Using seller financing to move your house keeps you free of that possibility.
Disadvantages Seller Financing:
1. If you need the money from the sale of your house to pay for your next house, this is not the type of deal that you will want. You might get a down payment out of the deal, but you’ll be waiting over the term of the loan for the rest of your money.
2. One reason why banks evaluate applications for loans is that there is a chance that any of them can go into default. People lose jobs, get sick and incur major medical expenses (while not being able to work) and make poor financial decisions. The risk is what brings you the right to charge interest, but be prepared just in case something happens.
Seller financing can prove to be a boon for both the buyer and the seller. If you are curious as to whether this situation could work well for you, get in touch with a mortgage specialist at Amansad Financial today.