What is seller financing?

In its fundamental form, seller financing is the term given to a situation where the property seller finances the prospective buyer in the real estate transaction to buy the sellers home. This course of action normally results from the inability of the buyer to finance the transaction themselves, or alternatively if they have been rejected for a loan by a loan company or bank.

There are two ways in which the home seller can help to finance a buyer, during any real estate transaction. The first method of finance available to the buyer is by the seller taking back a second note. The second method of financing is the seller making the entire purchase, providing that the seller owns the home entirely, with no mortgage.

A title or escrow (holding) company prepares the necessary paperwork after the buyer and seller terms are worked out, between the buyer and seller. If you are a seller who is considering this type of an arrangement, it is crucial to thoroughly assess the creditworthiness of the buyer before going ahead.

With seller financing, after the buyer and the seller have agreed on all the principles and the seller has consulted their real estate agent and attorney, then the details of the transaction are sorted out and finalized. How the seller is to finance the deal is of paramount importance and affects everything after the conclusion of the deal.

Seller financing is different from a traditional loan because the seller does not give the buyer cash to complete the purchase, as is the case in a normal loan from a lender. However similar to a loan, seller financing requires continuing a credit against the purchase price of the home while the buyer carries out a promissory note and trust deed in the sellers favor.

There are many benefits of this type of financing, which includes tax benefits to the seller. For the buyer this type of finance costs less than a loan because sellers dont charge loan fees.

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