About Seller Financing
Seller financing can be very helpful in making the purchase of real estate easier. In fact, if both the buyer and the seller do sufficient due diligence, seller financing can be mutually beneficial by avoiding the traditional underwriting procedures as well as certain costs often associated with the purchase and sale of real estate.
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Significance
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By offering seller financing, the owner stands a much better chance of selling the property than by requiring a buyer to secure traditional financing. This is particularly true during difficult economic times when banks only make loans to their most credit-worthy borrowers. Furthermore, both the buyer and seller have greater latitude to fashion the mortgage to their mutual benefit.
Function
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Banks traditionally are reluctant to lend money for the purchase of unimproved land, which makes for an ideal opportunity for seller financing. Furthermore, a seller can negotiate a higher interest rate through seller financing than he might receive from other investments. He can benefit by selling real estate "as is" rather than going to the expense of making improvements required by a lender. Often he will receive a higher price for the real estate since he is helping the buyer by offering financing.
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Misconceptions
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It is commonly believed that seller financing is offered only when a person is having difficulty selling a piece of property, or when the buyer has insufficient means to secure traditional financing. While these conditions do exist in some cases, there are many other reasons why this method of financing makes sense.
Warning
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If you are inclined to offer seller financing to a real estate buyer, be sure that she is credit-worthy. That will help you guard against foreclosure on the property as a result of her being unable to make payments as agreed.
Prevention/Solution
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Ask him to provide you with a financial statement that includes his outstanding debts, income and net worth, as well as a copy of his credit report. While you will stand the risk of the seller's future economic misfortunes, you will have done all you can to verify the quality of the buyer.
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