10 Advantages of Seller Financing
10 Advantages of Seller Financing When Buying or Selling Your Home
There are many advantages to seller financing.
As the world continues to change and home buyers struggle to qualify for conventional financing, what can you do as a home seller to ensure you sell your home for the price you want, when you want? There are many advantages of seller financing as an option. Using seller financing allows you as the home seller to transfer ownership of your home to a buyer, and accept payments from the buyer.
You basically become the bank!
What are the advantages of seller financing (also called “selling on terms” or “owner financing”)? We’ve listed 10 of the most common seller financing advantages below.
As you consider this option, we also encourage you to educate yourself around the advantages and disadvantages of selling your home using owner financing. We’ve published a FREE handbook for note holders containing detailed information on how to do this right and avoid money-losing mistakes. You can download a copy here.
So what are the advantages of seller financing?
Here are ten advantages to using the seller carry back to buy or sell real estate.
1. Shorter Marketing Times
Because conventional financing is not required, properties marketed with “Owner Will Finance” or “Owner Financing Available” will generally sell at least 20% faster than properties requiring conventional financing.
2. More Buyers
With conventional lending standards becoming more stringent, the seller carry back enables a greater number of buyers to purchase and finance a home because they don’t have to qualify for a traditional mortgage.
3. Speedy Closings
Another advantage of seller financing, is that it lacks the red tape of a conventional mortgage lender, a real estate transaction can close in as little as two to three weeks.
4. Maximize Selling Price
Buyers offering seller financing are often seen as offering a sales concession in many markets. The seller has an opportunity to realize full market value for a property when providing financing because of this.
5. Reduced Restrictions
Restrictive lending requirements don’t apply providing greater flexibility when it comes to the buyer’s credit history, down payment, debt to income ratios, and other underwriting criteria. While there are fewer restrictions when using owner financing, when selling to an owner-occupant, Dodd-Frank Wall Street Reform and Consumer Protection Act still applies. Among other things, you will have to qualify the buyers income using a licensed mortgage loan originator to ensure you remain compliant.
6. Fewer Costs
There are no expensive loan costs to worry about. Another advantage of seller financing is that buyers can put the money they save on origination fees, points, underwriting fees, mortgage insurance premiums, and junk fees towards the down payment and building equity.
7. Interest Income
The seller is able to collect long-term interest since they are essentially acting as the bank by extending terms to the buyer. On average a buyer will pay back 2 to 3 times the amount of the mortgage on a 30-year term as a result of interest.
8. Installment Sale Tax Deferral
When property is sold at a gain and subject to tax there can be an opportunity to delay a portion due when reporting under the Installment Sale Method (Refer to IRS Publication 537, Form 6252 and speak to a qualified tax professional for further details).
9. Secure Asset
Another advantage of seller financing, is that the balance of the purchase price is collateralized by the property. If the buyer stops making payments the seller can take back ownership of the home.
10. Liquid Asset
The seller owns a liquid asset, which is just a fancy way of saying somebody will purchase the note, mortgage, trust deed, or contract on the open market. Many sellers elect to sell their future payments to a note investor or note buyer for cash today rather than payments over time.
Seller financing offers a creative solution to financing real estate but there are some risks. For the flip side of the coin be sure to read the Disadvantages to Owner Financing. It also pays to consult with qualified real estate, tax, and legal professionals to make sure today’s solution doesn’t turn into tomorrow’s problem.
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