how seller financing works
buyers attracted to seller financing are often those finding it difficult to get a conventional loan perhaps due to poor credit unlike a bank mortgage seller financing typically involves few or no closing costs and may not require an appraisal sellers are often more flexible than a bank in the amount of down payment also the seller financing process is much faster often settling within a week for sellers financing the buyer s mortgage can make it much easier to sell a house during a down real estate market and when credit is tight buyers may prefer seller financing moreover sellers can expect to get a premium for offering to finance meaning they are more likely to get their asking price in a buyer s market seller financing rises and falls in popularity along with the overall tightness of the credit market during times when banks are risk averse and reluctant to lend money to any but the most creditworthy borrowers seller financing can make it possible for many more people to buy homes seller financing may also make it easier to sell a home conversely when the credit markets are loose and banks are enthusiastically lending money seller financing has less appeal like a bank sellers face the risk of borrower default however they must meet this risk alone disadvantages of seller financingthe chief drawback for buyers is that they will almost certainly pay higher interest than for a market rate mortgage from a bank financial institutions have more flexibility in changing the interest rate charged by offering non conventional loans long term the higher seller offered interest could wipe out the savings gained from avoiding closing costs buyers will still need to demonstrate their ability to pay back the loan as with any real estate purchase they will also pay for a title search to make sure the deed is accurately described and free from encumbrances other charges they may have to pay to include survey fees document stamps and taxes unlike banks sellers don t have a staff of employees dedicated to chasing down delinquent payments and filing foreclosure notices a court might order the buyer to reimburse those costs but if the buyer is bankrupt that will not matter if the seller still has a mortgage note on the property it probably has a due on sale clause or an alienation clause these clauses require full repayment of the current mortgage when the property sells 2 all this also means that both sides should employ experienced real estate attorneys to draft the paperwork to close the deal and make sure that all eventualities are covered 