Seller Financing is a popular real estate term that allows the seller to handle the mortgage process instead of a financial institution. In simple terms, the seller handles the mortgage procedure on behalf of the buyer, instead of a conventional mortgage bank.
Seller financing may seem strange to people who have never heard about the term before; however, seller financing is real, and many buyers and sellers make a good profit from it. We spoke to Winston Deloney, a versatile real estate investor and entrepreneur, and he gave us his thoughts on why he utilizes seller financing.
Why is seller financing a good option if you cannot access credit from financial institutions?
Winston Deloney: There are different options for you to access funds and purchase your property; however, most of these options require an average to excellent credit score. If your credit score is low, you may find it challenging to get a mortgage for a house you like.
Seller financing gives you the opportunity to lend money directly from the seller to finance the property you want to purchase.
The advantages of using seller financing for property mortgage include:
- Quick access to the loan or mortgage: Since a seller is not an institution, some of the legalese and the procedures involved will either be removed or lessened, giving both buyer and seller quick time to close the deal.
- More negotiable down payment.
Disadvantages of using seller financing include:
- The seller will be able to get his asking price within the buyer’s market: Since the seller will be financing the property-purchase, he has power over price, and the buyer will have no choice but to agree to the asking price since the seller holds all the cards.
Why is it an excellent process for buyers in times when banks are risk-conscious?
Winston Deloney: There are certain times financial institutions may be unwilling to lend out money to customers. It may be due to the political and social atmosphere—whatever their reasons are, they will tighten their mortgage and other loan requirements.
I advise real estate investors who cannot access conventional lenders to explore seller financing in times like these. Remember that the seller has a lot of control and may decide to push you into a less-favorable agreement; therefore, hire an experienced real estate attorney throughout the processes.
Is it because of the reduced down payments; no closing costs?
Deloney: Generally, a buyer will not pay closing costs if the seller handles the mortgage. This will mean reduced costs on the buyer’s side.
Also, if you have a good real estate attorney, he should be able to negotiate reduced down payments for you; however, it is certain that you will be paying a higher interest rate than a conventional bank will charge you.
As a seller, is it an excellent way to earn money?
While I have bought properties, I have also sold properties to buyers through seller financing in my younger years as an investor. It’s a two-way street.
First, I get to set the market price in the buyers’ market and remain assured that I will find a buyer willing to buy at the price I want. Also, while many risks are involved—since I will be dealing with people with low credit, I always take my time to vet potential buyers thoroughly.