Pros and Cons Of Seller Financing

Seller financing, in which an owner of Greenville NC real estate offers a buyer a mortgage, was almost unheard of over the last decade, when money was readily available and lenders vied aggressively for borrowers with myriad mortgage products. But as lending conditions have since tightened drastically and the housing market has softened, seller financing is emerging as an option for both parties.

Seller financing is just what it sounds like. Instead of getting a lump sum when the sale closes, the seller accepts the buyer’s promissory note covering terms like the loan rate, the years the loan will be in effect, the monthly payment, etc.

In many seller-financed deals, the seller provides only the financing the buyer needs to purchase the Greenivlle NC home. Some sellers require a cash down payment; others will finance the entire purchase.  In other cases, the seller provides the buyer with a deal to cover just a down payment, with the buyer using an ordinary mortgage for the bulk of the purchase price. This makes it possible to sell to a buyer who cannot afford the down payment required by an ordinary lender and thus increases the pool of potential purchasers.  In addition, some sellers may demand a balloon payment a number of years down the road.

Although seller financing is generally an option only for owners with no or very small mortgages on their homes, there are many advantages for such an arrangement, including a higher sales price and interest rate, monthly income, tax breaks, few (or no) repair costs, lower closing costs, and a shorter listing period.

Conversely, there can be disadvantages associated with acting as a lender.  Pitfalls may involve the need to pay off any existing mortgage, possible foreclosure, abandonment, taxable interest income, lack of lump sum cash, and time expended to accurately assess creditworthiness of the borrower.

Sellers considering this strategy should make sure that they can afford to wait for the equity and are comfortable collecting only monthly cash flow for the period of the note.  They should also exercise due diligence such as requiring a loan application, reviewing the buyer’s credit, and receiving a reasonable down payment.  You should also have a real estate attorney prepare the promissory note and mortgage and have the closing company issue title insurance.  Click here for other precautions.

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Whether you are considering buying a home, selling a home or both, Liz Freeman knows the Greenville, North Carolina area inside and out.  Most of her team members were born and raised in Pitt County, NC which has provided them with strong ties to the area, allowing them to become a successful Greenville NC real estate team.