Eliminating the middleman in most situations results in faster, easier and better transactions.
When it comes to seller financing, there’s a certain attraction of having the seller finance the transaction, instead of involving banks and mortgage lenders.
While there are a few risks involved, both buyers and sellers can benefit from seller financing.
Let’s dive into how seller financing works and why you should consider it when you’re looking to sell your next property.
What is Seller Financing?
Seller financing does have some fine print details, but essentially, the term is exactly what it sounds like.
A property owner acts as the bank while the legal ownership of their space is possessed by another buyer. The buyer’s payments are directly sent to the previous owner rather than being sent to a bank.
Homeowners that own property free and clear may want to get cash for it, all at once and move on with their lives.
However, the value of receiving steady, monthly payments for your property might outweigh the need for a fat check.
For example, if HomeFront offered you the choice of receiving $100,000 today or $700 per month for 20 years, which would you choose?
Many of you would likely choose the $100,000 upfront, but if you do the math, you’d end up with $168,000 in 20 years, which is almost double the original amount.
In selling financing, it all depends how fast or slow you need your money from the buyer.
Pros and Cons of Seller Financing: For Sellers
Here are some things to consider before using seller financing:
Pros:
Steady Monthly Income: The most common reason many use seller financing is to get a steady monthly income. There are homeowners who would rather get one lump sum, but others who prefer monthly income can do it easily through seller financing.
Still get a lump sum amount: In the same way that a bank requires a down payment for a mortgage, as the homeowner you can also require a down payment. You still receive cash in your pocket immediately and in addition still receive monthly payments.
Better ROI: Many homeowners choose to sell through seller financing because the interest that they get is likely greater than going through a bank. If a homeowner sells their home for $100,000, they could put that money into the bank for 0.05% APR, receiving $50 in interest per year. On the other hand they could provide seller financing to get 3%, 4%, or even 5%. At $700 per month, that is $8,400 per year. That is a 168 times greater return than putting it into savings at a bank.
Sell Faster: If you need to get out of your current space as fast as possible, seller financing may make your home stand out, and potentially have it sell quicker. Buyers like HomeFront want financing available from the homeowner and will be quick to buy.
No Home Renovations: Seller financing means that homeowners can sell their home as is, meaning no costly renovations, repairs, and cleaning required before moving out!
Spread Out Taxes: If you’re not collecting all of the money for your home at once, your taxes will be spread out over multiple years, and you won’t pay as much in taxes. If you sold your property for $100,000 you would pay taxes on all of this in the same year! With seller financing, you delay most of those tax payments and only pay a small portion of that tax bill each year. This means that at the end of the deal, you kept more money by paying less taxes for selling!
You Get the House Back: If the buyer stops making their payments, you keep the money that they’ve given you thus far, plus their down payment, and you get to take your house back.
Can Fit Unique Situations: Seller financing provides more efficient ways for sellers who need to get out of a space quickly, without having to fix the property up beforehand.
Cons:
Buyer Can be Unreliable with Payments: Buyers can stop making payments at any time without consulting you first. However, just like the bank, you can foreclose and take back the property!
Potential Repair Costs: If the home ends up in your possession in the future and the buyer did not care for the property like they should’ve, you may incur some repair costs to fix it back up.
Luckily, both of these cons are non-issues when dealing with HomeFront. As a business, payments are a part of our monthly expenses and always taken care of. Additionally, the first thing we do when we buy a home is repair and renovate, so within 3-6 months, the home is like new!
HomeFront is all about tailoring to our clients and we love to work with sellers who prefer seller financing, but only when it suits your situation.
If you have any questions, comments or concerns about seller financing, contact us on our website!
