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The pros and cons of seller financing

On Behalf of | Dec 12, 2022 | Real Estate |

Seller financing occurs in a real estate transaction when the property owner functions as a mortgage lender. Continue reading to learn about the benefits and drawbacks to the seller and buyer participating in this type of financial arrangement in New York.

Pros

Seller financing is an attractive alternative to lender financing when both parties benefit from the agreement. Carefully assess your situation to see if it’s the right choice for you.

Seller

When the seller offers to finance the property purchase, they relinquish the opportunity for a lump-sum payment in exchange for a steady monthly income stream. In addition, offering to provide seller financing may entice more potential buyers to view the property and lead to a quicker sale.

Buyer

Buyers who have difficulty qualifying for a traditional mortgage may be grateful for any alternative that allows them to purchase a home. Others may choose this financing method to save money on closing costs. The seller may require a lower down payment than a lender and waive the need for an appraisal.

Cons

Potential disadvantages exist for both sides of a seller-financed transactional real estate deal. Consider these carefully before committing to this type of transaction.

Seller

The seller’s financial situation could deteriorate and make them regret that they didn’t receive the full purchase price at the closing. In addition, any future foreclosure actions will cost them legal fees.

Buyer

Buyers will most likely have to pay a higher interest rate for a seller-financed loan than they would with a traditional lender. In addition, the seller-financed loan is probably a balloon mortgage, which requires the borrower to pay the mortgage balance within a few years. This lump-sum payment might be problematic, depending on their financial circumstances at that future time.

Seller financing is a viable option in many circumstances. Take your time to explore all aspects before you proceed.