A majority of home sales involve mortgages secured through lenders. However, sometimes the buyer and seller opt to keep it between themselves. This can be a generous offer by the seller, but both sides need to have an agreement regarding the financing and sale.
What it should include
The contract will have terms that both will need to agree on. The parties can negotiate them with a handshake, but it is essential to put everything in writing using a binding agreement regardless of how trustworthy they seem. Details to include:
- The names of the buyer and seller
- Date where the buyer takes possession
- The loan amount
- Insurance coverage
- Tax burden
- Interest rates
- Additional fees that buyers must pay
- All things covered in the usual full disclosure
- Maintenance and update details
- What happens if the buyer defaults on the loan
- How to address any future disputes
Circumstances where seller financing comes into play
There are occasions where seller financing may seem like a good option:
- Long-term renter: A long-term renter may be interested in buying a home or vacation property because they have a proven commitment to the property and the owner. Still, they may not have the credit to qualify for a loan.
- Enough for a down payment: Some may not qualify for a mortgage, but they do have enough cash to offer a reasonable down payment.
Why would the seller do this?
Each seller will have their reasons for seller financing. Some may be sentimental, such as ensuring that a property stays in the right hands. It may also be a business decision where the seller can (depending on the terms) get more money by charging favorable and agreed-upon terms regarding interest and payment schedule.
Every agreement is different
There are no one-size-fits-all contracts when it comes to seller financing. It is best if each side works with a real estate expert and an attorney to ensure that the agreement protects the client’s interests and will stand up in a court of law.