Seller financing can be a win-win situation for both the buyer and seller in a real-estate transaction. As long as the contract is legal and both sides honor their obligations, both parties will find that seller financing is much less costly than traditional financing methods.
In most cases, there is no need for a traditional closing, unless the buyer is using proceeds from a mortgage loan to cover some of the home’s purchase price in addition to the seller financing.
The Seller For the seller, offering seller financing is a great way to attract buyers when the market is slow and interest rates on traditional mortgage loans are high. This is because every shopper likes a bargain, and homebuyers are no exception.
Sellers also benefit when they extend financing to the buyer because, unlike in traditional sales arrangements, the seller – not the lending agency – collects the interest payments.
Entering into an agreement to provide seller financing may also provide tremendous tax relief for sellers who receive a large capital gain with the sale of their home. Often seller-financed home sales are not subjected to the same tax laws. Speak with a tax professional or real-estate attorney specializing in seller financing before you enter into this type of agreement for tax purposes.
Along with these advantages, seller financing presents a major risk to the seller. If the contract is incomplete and the buyer defaults, the seller may be unable to pursue collection activities and foreclosure may be extremely difficult.
If you are considering seller financing as an option when selling your home, here are some things to consider:
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