The traditional home selling route isn’t always the best solution. Seller financing homes in Utah is more common then you think and can be a good fit for your unique situation. Read on to see what you need to know before seller financing and the pros and cons to consider.
What is Seller Financing
Most people can’t just drop a couple hundred thousand dollars in cash to pay for a home purchase. Because homes are so expensive buyers generally need to find financing to pay for the home and this is commonly done by reaching out to a lender and securing a mortgage. In a seller financing, however, the owner works as the bank and no mortgage company is involved. The buyer finances the home purchase directly through the seller.
How Does Seller Financing Work
Seller financing works in a similar fashion to a mortgage, the main difference being that you, the seller, are extending the financing and holding on to the title to the home for a time. During a traditional mortgage there would be fees to pay at closing, with seller financing the only money you receive is the amount you agreed on for a down payment.
In a seller finance you work with the buyer to negotiate the details of the promissory note that details how the buyer will pay you back for the loan. The note states the interest rate you will charge on the loan and the repayment schedule. The promissory note can also detail what happens if the buyer defaults on payments.
Seller financing terms are generally shorter than a traditional 30 year mortgage because as the seller you probably want to receive your payout without waiting 30 years first. Some seller-financed loans can call for a balloon payment which is a lump sum paid during or at the end of the term.
Explaining a Balloon Payment
While you can write in the note that the loan will be amortized over a period of 30 years (to give the buyer a reasonable monthly payment amount) you can include in the note that the total remaining amount is ‘due and payable’ at say, the 15-year mark.
Balloon payments give the buyer time to build their credit score and create equity in the home, two things that will help them to get approved for a mortgage from a traditional lender. You will receive your payout before the 30 years are up but you will also give time for the seller to get approved by a bank who would then loan the money for your final balloon payment.
Why Use Seller Financing as a Seller
Seller financing is something you might want to consider if you are in a situation where you don’t have a lot of equity built up in your home. Perhaps you haven’t owned the home long before divorce or work requires you to sell the house — and with that comes closing fees and expenses you might not be able to afford. Seller financing can also be attractive to a seller if the home needs work and repairs that a bank would normally require you to fix before financing the home. In a seller finance deal the home can be sold with those issues without a third party insisting on updates and repairs first.
Pros for a Seller with Seller Financing
- From an investment standpoint, you could potentially earn better rates on the money from selling your home then you would from other investments.
- You retain the title on the home. If the buyer defaults you keep the down payment and money that was paid on the home and can list it again to find a new buyer.
- You can potentially sell the home quickly and close faster without all the middle men involved in a traditional home purchase.
- You can sell the promissory note to an investor, giving you the lump sum payment right away or if you need it before the balloon payment is due.
- You can sell your home as-is, no expensive repairs required.
Cons for a Seller with Seller Financing
- The buyer could default on monthly payments at any time. If you are tight on cash this puts you in a difficult situation.
- If the buyer defaults you could end up going through a lengthy foreclosure process if they refuse to leave the home.
- If the property does end up back in your possession then you may have repairs and maintenance that need to be taken care of, depending on how well the buyer took care of the home
Other Options for Selling a House Quickly
If you’re in a situation where the risk of going through with financing your home seems too great, or the repairs and problems with your house are more than you can afford then don’t give up, you have more options. Talk to Gary with Gary Buys Houses, a reputable house buying company in Utah. Gary will buy a house in any condition and can give you a fair cash offer right away. Don’t waste your time waiting on your cash payout or trying to find a trustworthy buyer that won’t default on your agreement. Let Gary buy your house and close in as little as a week. Contact Gary today.