If your house isn't selling or you are unable to buy due to low credit scores, seller financing is an alternative to consider. This type of financing is similar in many regards to that of a home or mortgage loan, it is great option to consider if you want to sell or buy.
What is seller financing?
Seller financing allows the seller to be the lender. Instead of handing over a loan, the seller allows the buyer to make payments, cutting out the middleman. This allows for both the buyer and the seller to come to an agreement concerning terms of payment and interest rates.
This works great for sellers for a number of reasons:
- If they stop payments, you get the house back (and you get to keep whatever they've already paid)
- Subject to better interest rates
- Can help sell your home faster
It also works great for buyers too:
- Closing is fast and cheap
- Allows you to still buy a home, even if you were denied a loan previously
- Can be a cheaper down payment
Don't be fooled there is also a downside for both the seller and the buyer. For sellers it can be a hassle for you if they stop payments. If they don't leave, you may have to go through an eviction and a foreclosure process. The downside for buyers is that you will most likely have a higher interest rate to pay.
What is a contract for deed?
A contract for deed is a form of seller financing. In a contract for deed, the buyer makes regular payments to the seller for a period of time. Terms of payment and interest rates are negotiated and settled between the buyer and the seller. The seller will be the legal titleholder until the contract is full-filled. Once the contract is full-filled, the buyer will then apply for bank loan or mortgage financing.
What is lease with option to buy?
Lease with option to buy is another form of seller financing. This is similar to your standard lease; the difference is this option allows you to buy the property. The buyer will pay for rent and a set fee upfront for the option to buy. Part of the rent will goes towards payments for the property and part will goes towards interest payments. Again, the buyer and seller come to an agreement on terms of payment and interest.
Which option is best for me?
Seller finance is a great option if you want to sell your house quick and make money off high interest rates. It is also a great option for buyers who were unable to get a home loan from the bank.
Depending on your financial circumstances, consulting with a lawyer who specializes in real-estate affairs would provide advice on what the best option is for you. Your attorney can also negotiate a fair payment plan and interest rates. They can also draft contract agreements or oversee agreements provided by other parties. Most importantly, an attorney can ensure that you are receiving a fair deal and will address issues that may arise with payment schedules.