Seller Financing Gaining in Popularity as Mortgage Market Continues to Flounder
One of the biggest issues afflicting would-be homeowners right now is an extremely illiquid and rigid mortgage market. Many mortgage lenders are balking at offering home loans — even to those with reasonably good credit. They are demanding higher down payments and sometimes simply refusing to lend. My neighbors across the street have been on the verge of selling twice in the last six months, only to have mortgage lenders pull out when they decided that a credit score in the high 600s just wasn’t good enough — and neither was a 5% down payment.
As a result, reports MarketWatch, the idea of seller financing is gaining more traction in the housing market right now:
The concept of owner financing isn’t new, though it wasn’t as popular when mortgage money was easier and cheaper to come by through traditional lenders. But in today’s tough real estate markets, being able to finance the sale of your home can give a seller an edge.
“There are a lot of good buyers out there that can’t get loans,” said Dawn Rickabaugh, of Rickabaugh Realty, in Pasadena, Calif. “When you eliminate the hurdle of qualifying for a bank loan, you’ll double the amount of buyers interested,” she said. Rickabaugh also oversees the Web site NoteQueen.com, which focuses on owner financing.
Benefits of seller financing
Both the seller and the buyer receives benefits when engaging in seller financing. Obviously, the buyer gets a home mortgage loan that he or she would normally not get from traditional mortgage lenders right now. And the buyer does not have to go through as much of the rigorous paperwork.
The seller gets to sell the house, possibly faster than if he or she only accepted bank financed buyers. Additionally, the seller gets a form of regular investment income. It is possible to charge between 7% and 8% interest with seller financing, which means you will get more money in the long run, since you will be the one earning the interest.
Things to keep in mind with seller financing
Seller financing can be risky, though. You should do a credit check beforehand, and check to make sure that the buyer can afford the home. You do not want to be stuck foreclosing if the buyer defaults. Another good plan is to require a substantial down payment. 8% to 10% is a good requirement when doing the seller financing thing. This way, the buyer has a vested interest in living in the home, rather than just walking away.
Another good idea is to check with a real estate attorney. It is worth the money to hire someone who can make sure the legal aspects of the transaction and the paperwork are in order.
Tags: home loans, mortgage lenders, home mortgage loan, seller financing,
mortgage market, credit score, down payment
