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Real Estate News from Bob Ferguson
September 2023 Visit my Website | bob@outofboundsrealty.com

The Pros and Cons of Seller Financing: What You Need to Know

In the last year, interest rates have surged—with the average mortgage rate more than doubling. This rapid rise has left some homebuyers seeking alternative financing to fund their property purchases. As a result, private financing options have gained popularity in the real estate market. According to data from Realtor.com, the mention of private financing in property listings reached 1.08% in February, the highest it has been in three years. If you’re considering delving into this option, you should understand what seller financing entails and weigh its pros and cons against traditional mortgage loans.

What Is Seller Financing?
Seller financing, also known as owner financing, is when the seller acts as the lender, providing financing directly to the buyer. Instead of getting a conventional mortgage from a bank, the buyer pays the seller in installments over an agreed-upon period. This arrangement eliminates the need for a traditional lender, empowering the seller to oversee their own debt.

In a typical seller financing transaction, the property’s title is transferred to the buyer during the closing process. Subsequently, the buyer makes regular payments to the seller based on the terms outlined in the agreement. While seller financing has historically been more common among real estate investors, it is now gaining traction in residential property purchases.

Pros of Seller Financing

  • Increased Accessibility: Seller financing can be a viable option for buyers who do not qualify for a traditional mortgage due to strict lending criteria or a less-than-perfect credit history.

  • Flexible Agreement Terms: Unlike standardized mortgage agreements, seller financing allows for greater flexibility in negotiating terms such as interest rates, repayment schedules, and loan durations.

  • Lower Closing Costs: Since there is no involvement of a traditional lender, the buyer can save on some of the typical closing costs associated with mortgage loans.


Cons of Seller Financing

  • Higher Risk for Sellers: By acting as the lender, sellers expose themselves to the risk of buyer default. Initiating the foreclosure process can be lengthy and expensive.

  • Fewer Protections for Buyers: Seller financing may offer fewer consumer protections and regulatory oversight than traditional mortgage arrangements. Buyers should seek legal advice to ensure their rights are adequately protected.

  • Potential Overpayment: Without a professional appraisal, buyers could potentially overpay for the property.

  • High Interest Rates and Balloon Payments: Seller financing often involves higher interest rates than a traditional mortgage and may require borrowers to make a balloon payment at the end of the loan term.

Seller financing can be a suitable option for some buyers. Reach out for my professional advice today.

Bob Ferguson, 11423 20th Avenue S, Burien WA 981868
The material in this publication is provided for your informational purpose only and is not intended to substitute professional advice. If your property is currently listed with a Real Estate Broker, this publication is not intended as a solicitation.



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