Seller Financing: What Are The Advantages?

Seller Financing, also known as owner financing, is growing in popularity in today’s economy.  With the credit markets slowing down and people finding it harder and harder to borrow, seller financing is looking better and better as an alternative to traditional financing. Seller financing is when the seller of the property basically agrees to take payments rather than a lump sum.

The Essentials of Seller Financing

Here are a few things that need to happen in order for the owner to be able to finance your deal:

1. The owner needs to have considerable equity in the property. The owner will usually have their own mortgage. They will need to pay back the loan in full when they sell the property to you. If they don’t have a whole lot of equity, they usually can’t offer to finance a whole lot of the deal. The best scenario is an older owner that is close to retirement. Odds are that they have a good amount of equity or even own the property free and clear. They are looking to retire. They just want a steady cash flow rather than a lump sum when they sell the place.

2. The owner should have a desire to accept seller financing. If the seller wants to roll the funds over into another property or needs the lump sum of cash for one reason or another, they probably won’t want to take on very much seller financing.

3. The terms need to be right for both parties. The interest rate, duration and repayment structure need to be acceptable for both parties. This usually requires a good deal of negotiation.

The Benefits of Owner Financing

If you have all your ducks in a row and seller financing seems like it might be a possibility, here are some of the benefits to consider if you are thinking about locking in seller financing:

1. You might not have to get traditional financing. This depends on how much the owner is willing to finance. If they are willing to finance just a little bit, this might help you lower your down payment or help you qualify for traditional financing, but won’t completely eliminate traditional financing unless you pay the remaining amount due as a down payment.

2. You could get more flexible terms than you would on a standard mortgage. You have the power of negotiating so that both the buyer and the seller walk away with a fair deal. This typically can’t be done with a traditional bank.

3. The seller is still somewhat on the hook for the property. You know that you aren’t getting totally ripped off, because the seller still hasn’t received all their money. There is a possibility that you could pay a little bit of a premium for the deal. If they end up totally screwing you, and the property completely falls apart in a few years and you let it fall into foreclosure, the seller only stands to get the property back. The seller isn’t going to want to lend to you using a bum property as collateral.

Conclusion

If seller financing seems like it would work for you, there is no reason to start looking for properties for sale with seller financing. Even if a property isn’t advertised as offering seller financing, you may be able to talk with any seller and see if they are willing to negotiate on terms.

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