Real Estate Tips: The Risks and Benefits of Seller Financing
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The real estate market has finally begun to rebound from its lowest point in decades, and the Case-Shiller Home Price Index shows home prices are steadily increasing from last year. If you’re selling a home, now could be the time to put up that “For Sale” sign in the front yard.
The only problem is that banks are keeping mortgage lending restrictions tight. This means some buyers—especially those with less-than-perfect credit—are being kept out of the home-buying game, according to the National Association of Realtors (NAR).
The new owner of your home could be out there waiting for you without a way to make a purchase. So what’s an anxious seller to do? Consider taking on the role of lender.
What is seller financing?
Seller financing, also known as owner financing, happens when you (the seller) offer a loan to the buyer. In many cases, the buyer pays a portion of the purchase price up front and then pays the rest—anywhere from 20 to 50 percent—back over time, with interest. This could be an option if a buyer can’t obtain a loan from a bank.
The move might not be for everyone, though. Here’s a quick rundown of pros and cons you may want to consider before financing a purchase for a buyer.
Pros of seller financing
Cons of seller financing
As with traditional home sales, NAR recommends getting expert advice from accountants and real estate lawyers, where necessary, to keep things fair and legal. If you’ve never financed the sale of a home before, expert advice will be key to helping ensure the process goes smoothly.
Ilyce Glink is the author of ten books, including the bestselling 100 Questions Every First-Time Home Buyer Should Ask. Her nationally syndicated column, “Real Estate Matters,” appears in more than 125 newspapers and Websites, and her online “Ask Ilyce” columns are read by hundreds of thousands of people every month. She is a top-rated radio host on WSB Radio in Atlanta, the Home Equity blogger at CBS MoneyWatch.com, host of the Internet program “Expert Real Estate Tips,” managing editor of the Equifax Personal Finance Blog, and publisher of ThinkGlink.com.
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