Benefits and Drawbacks of Seller Financing

Seller financing refers to when a potential purchaser of a home has a portion of the sale financed by the person who is selling the home. The seller then becomes the buyer’s lender and can set their own terms for the loan. This arrangement is usually considered a secondary option to buy a home, outside of conventional routes, such as taking out a mortgage with a major financial institution.

As with anything else in life, seller financing has many benefits, as well as some drawbacks. This is true for both buyers and sellers. Below, our for sale by owner attorney in New Port Richey explains in greater detail.

Seller Financing Benefits for Purchasers 

Potential buyers can benefit from seller financing in a number of ways. Many buyers cannot afford the 20 percent down payment most financial institutions require. When a seller is financing the sale, they will often accept a lower down payment without any penalty. Additionally, because buyers avoid banks and other lenders, they may also pass fewer closing costs and other fees.

A low credit score can make it difficult to be approved for a mortgage. By avoiding conventional lenders, buyers can also avoid their strict lending requirements. People who have struggled with making payments in the past may find seller financing very beneficial.

Seller Financing Benefits for Owners

 For owners, seller financing can provide another source of income. Essentially, owners are investing in real estate, although the transaction is a bit more personal. Owners can also sell the promissory note to an investor and receive a large one-time payment in exchange.

Before selling a home, owners often have to complete a lot of renovations and fix imperfections in the home. When there is a seller financing arrangement in place, buyers are often much more willing to buy the home as-is. This not only helps with the stress of selling, but also allows owners to keep more of their money.

Seller Financing Drawbacks for Purchasers 

Owners usually do not want to give buyers 15 to 30 years to pay off their loan. As such, the terms of a seller-financed deal are generally much shorter with a balloon payment due at the end of the loan. Seller financing is also often used by buyers as a last resort. Owners know this and sometimes, they take advantage of this fact by charging higher interest rates.

Seller Financing Drawbacks for Owners 

While owner financing does have many benefits for sellers, it can pose risks for them, as well. If the owner fails to pay the loan, the seller will have to foreclose and the process can be long and costly. If a seller retains control of their property, they may have to go through the selling process again, and possibly make costly repairs to the property.

Call Our For Sale By Owner Attorney in Tampa Today 

It is true that seller financing has many benefits, and some drawbacks, for everyone involved. To ensure you reap the most benefits, you need legal help. At Messina Law Group, P.A., our Tampa for sale by owner attorney can provide it and ensure the sale proceeds as smoothly as possible for you. Call us now at (813) 492-7798 or chat with us online to schedule a consultation and to learn more about how we can help.