Seller financing, good idea or bad?

Imagine that you really want to sell your home. Whether another house has caught your eye or you need to relocate, you may be anxious to get your home sold so that you can move on. Financing can be a pitfall for some buyers.

Should you take part in assisting them with financing? What if they can’t get traditional or online loans? Here are just a few things to consider before making a final decision.

Seller financing means that you are going to provide the loan to the buyer instead of the bank doing so. They will give you the down payment and make monthly payments at an interest rate that you both have agreed on.

This can be beneficial for buyers that just don’t have the credit score they need to be approved for financing through the bank or with online loans.

As a seller, your return is guaranteed. The loan is secured by the home that is sold.

If the seller defaults on the loan, just like a bank or online loans, you are able to go through the foreclosure or repossession process and take the property back. If this happened, you keep the down payment as well as all the payments that were made on the home and you can once again put it on the market to sell.

If you have the ability to “carry” the loan for the seller, there are benefits for you financially. But there are some drawbacks to this process.

You can both mutually enter into an agreement, but what happens of someone doesn’t hold up their end of the deal?

Unfortunately, you need to be prepared in case the person does default. If the payments stop coming in, you can’t just go in and kick them out. There is a procedure that needs to be followed.

When things do turn out bad, a foreclosure or repossession can take up to a year, if not longer, for you to get your house back. In that time, the person isn’t making payments and you are losing money.

If the buyer wasn’t approved by a bank for a loan, there is a reason. In this case, you may not know the reason and could set yourself up for a problem.

If they default and you finally get them out, you have no idea what the condition of the home will be.

While this is an investment on your part, it does tie up a large amount of money. If you sold the property traditionally, you would be walking away with a lump sum.

Instead, you are planning to get this money over the course of the next few years or decades. Yes, there will be interest, but it will take time to get the final amount.

If this is an option that you are considering, it is important to sit down with an attorney to create a Purchase Agreement that everyone adheres to. Documentation and contracts are key to making this work.

You need to know what happens if things don’t turn out well. You want to ask what the best outcome can be and what the worst outcome can be, so that you are prepared.