Imagine you want to sell your house quickly, maybe because you’ve found another place you like or need to move for some reason. Naturally, you’d want to speed up the sale process. But potential buyers might face financial problems, making it hard for them to get a loan. Should you help them secure financing, and what can you do if traditional or online loans aren’t available? Think about these factors before you decide.
One option is seller financing, where you, the seller, act as the lender instead of a bank. The buyer makes a down payment and then pays you monthly with an agreed-upon interest rate. This can be beneficial for buyers who don’t have a good enough credit score to get a bank loan.
For you, the seller, your return is secured by the house itself. If the buyer fails to pay, just like with a bank loan, you have the right to foreclose or repossess the property, allowing you to resell it. In this case, you keep the down payment and any installments that were already paid.
While offering to finance the buyer’s loan can be financially rewarding, it also comes with risks. Even with an agreement, there’s no certainty the buyer will keep up their end of the bargain. You must be prepared for the possibility of default. If payments stop, you can’t just evict the buyer right away; there’s a legal process to follow.
In a worst-case scenario, eviction or repossession could drag on for over a year, during which time you wouldn’t receive payments and would lose money. There’s likely a reason the buyer couldn’t get a bank loan, which could spell trouble for you.
If the buyer defaults and you can finally evict them, you have no idea what condition the house will be in. While seller financing can be a good investment, it ties up your money. Selling the traditional way gives you a lump sum right away, whereas with seller financing, you get your money back gradually over several years or even decades, even with added interest.