In a tough mortgage environment, seller financing can be a boon both for sellers trying to dispose of a property and buyers unable to satisfy a conventional lender.
Among buyers who could run into problems obtaining a mortgage loan are those who recently changed jobs, are self-employed or have a demerit, justified or not, in their credit history. For them, seller financing can be the answer to purchasing a new home.
For sellers trying to add value to their asking price, ability and willingness to offer financing can make the difference between a sale that falls apart and one that succeeds.
But–of course, there always are ‘buts’–each side of such a transaction needs to proceed cautiously and must depend on the services of well qualified attorneys.
From the seller’s point of view, it is essential to obtain assurance that the buyer can meet payments. Yet foreclosure always is the ultimate option for protection against default, if time-consuming and costly.
For the buyer, it is wise to bear in mind that a conventional lender’s due diligence is required for a reason. Appraisals and title searches are part of their process to ensure that property used as collateral is worth the amount on which both parties have agreed. You don’t want to pay too much or face ownership questions down the road.
Even if a seller isn’t offering financing at the outset, it’s worth having your broker ask about the possibility. And if a seller is having no luck unloading a property for too long, doesn’t need a ton of cash to pay off an existing mortgage or to buy a new home and welcomes higher than prevailing interest rates, providing the buyer with a mortgage may prove to be a winning tactic.
Both sides need to act methodically, carefully and, in most ways, conventionally to keep a transaction made in heaven from turning into one that ends up as one transformed into hell.
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022