Advantages and Disadvantages of Financing Your Buyers When Selling Your House
In a slow real estate market, home owners may resort to methods, such as seller financing to facilitate the sale of a property. With seller financing, the seller in essence becomes the banker, eliminating the need for the buyer to obtain a bank mortgage loan. The seller typically retains official ownership of the home until the buyer fulfills the terms of the financing agreement. Seller financing offers a number of potential advantages and disadvantages for the seller.
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More Profitable
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Seller financing can turn out to be a more lucrative transaction for the seller. Because the seller is providing the financing on his own, he may be able to sell at a higher price and set an interest rate that is higher than what banks are offering. He also can benefit by receiving the additional monthly income from the buyer until the home officially changes hands. According to Lawyers.com, the seller may receive a tax break because of financing the purchase over a number of years instead of receiving a lump sum.
Faster Sale
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Another advantage of seller financing is that it can help a seller move a property quickly or stimulate interest in a less desirable or attractive home. Seller financing eliminates the need for the buyer to go through the traditional process, which often takes up to 60 days or longer. Seller financing can also attract a greater number of potential buyers, which can also help to locate a buyer more rapidly.
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Credit Issues
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On the downside, the seller may have to resort to selling the property to an individual with a questionable credit history, as seller financing often attracts buyers who do not qualify for a traditional mortgage. If the seller does not take the time to evaluate the buyer's credit, he could face a higher risk of the buyer defaulting. Since the seller technically still owns the home, he faces the possibility of foreclosure if he cannot assume the payments or find a new buyer quickly.
No Immediate Return
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While not receiving a lump sum upfront could offer tax advantages, it also means it will be longer before the seller receives a significant return on transaction because the buyer is paying over time. In the meantime, the seller still bears the burden of owning a property she really does not want. If the transaction does not pan out over time, it could even prove to be a financial loss.
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References
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