Not all real estate transactions require a buyer to take a loan out from a bank. In Seller Financing and Land Contract situations the home owner actually loans the buyer the money to purchase their home and acts as the lender – taking on many of the risks and benefits.
Seller financing can be very beneficial for both the seller and buyer. If a buyer can not obtain a loan, seller financing can enable them time to rebuild their credit, or time to sell their old house and clear their old mortgage so they can get a new one. Sellers benefit because as the lender they can charge interest on the loan they are making to the buyers.
However seller financing comes with some serious risks. Even though the buyer makes their payments to the seller, if the seller does not pay their mortgage the buyer could loose the house if the seller is foreclosed on by the bank. Since the seller is the lender, if the buyer decides not to make payments the seller can not just evict them. They may have to go through a foreclosure procedure which is time, labor, and dollar intensive compared to an eviction.
If you are considering seller financing, either as buyer or as a seller, it is important to talk with a real estate professional so you can understand the risks and benefits to you and the other party. If you have additional questions contact Alison and Brett!