Residential mortgage loans are among the most common financing options used for purchasing a house. In recent months, because of the coronavirus pandemic, seller financing is coming forth as a lucrative and wise choice. There are several advantages of seeking seller financing in today’s times over conventional bank loans.
For starters, seller-financed transactions tend to be cheaper and quicker as compared to traditional ones. They also run for a shorter duration making them a sound choice in the “new normal”.
Understanding Owner Financing
Homes are typically the largest single investment made by an individual. They tend to be expensive investments and usually require financing of some type. Owner financing takes place when the house seller finances the purchase directly for the home buyer. There is no third party involved in the form of a bank or a conventional mortgage lender.
The seller, in this situation, does not hand over the money to the house buyer as a bank would. Instead, the seller covers the purchase price of the property by extending enough credit to the house buyer. This amount is the asking price less any down payment. The buyer is then required to make regular payments until the amount is paid in full.
Benefits of Owner Financing for Sellers During Covid-19
Seller financing has several regular advantages. But many experts are recommending it during the pandemic. This is because sellers don’t need to invest in making costly repairs or upgrades to sell their property. These upgrades are usually required by traditional lenders to ensure the property is worth the mortgage.
With the investment market in a disoriented and disorderly state, it can be easy to lose your money. Extending credit to the buyer of your house allows you to earn better rates than you would from investing in stocks or other things. Risk is almost minimal since the buyer signs a promissory note spelling the terms of the transaction and loan.
This note will include the repayment schedule, interest rate and consequences of a default. As the owner, you may also decide to retail the property title until the buyer is able to pay off the loan in full. You can sell this promissory note to another investor at a later date if you ever want quick cash. The investor will provide you with a lump-sum payment.
When you retain the title to your house, you get to keep the property and any money paid towards it if the buyer defaults. You don’t even have to return the down payment. In addition, there is always the potential to close a transaction faster. The buyer doesn’t have to wait weeks for the banks or mortgage lenders to close the sale.
Seller Financing Benefits the Buyers
In addition to seller benefits, the process is beneficial to buyers as well. They don’t need to pay added underwriter or legal department expenses. There are no appraisal costs or bank fees involved. Generally, down payments are flexible in seller financing with no minimum bank or government requirements to be met.