What Is the Advantages of Seller Financing for Buyers.
Advantage #1
1. You don’t have to use a Bank to buy a home.
If you are a buyer and you have been turned down by a bank, mortgage broker, or some other institution, I have good news for you.
Suppose you are self-employed or have an income that is based on a commission or bonus base. You may have credit issues judgments and all sorts of reasons why you can’t qualify for a loan right now.
Those issues can be dealt with, and a good lender can sit down with you and outline what steps you need to take to resolve those issues and then make sure that there’s plenty of time in your contract to have those issues resolved so that you can qualify for a mortgage.
There are a couple of ways you can use seller financing to buy a home.
One way is a lease with the option to purchase, but it is not the only way. This type of contract is used for someone who might not have a large enough down payment for a Contract for Deed.
Typically, in a lease option agreement a price is identified and committed to. Many time lease options are from 1 year to 3 years. So, it gives the buyer time to work out whatever their issues are and get a loan from a traditional mortgage company to buy the house. And then the property will belong to them.
The option money that they give to the seller is applied to the purchase price. And so, that is not money they just throw away. Now, if they don’t exercise the option, then that option money is forfeited, and the seller gets to keep the money.
Many lease options will have as part of that contract that a portion of the monthly payment also can be applied to the purchase price so the buyer can build up equity in the house through the monthly payment.
The better way is to buy a house on a Contract for Deed. It usually requires a larger down payment, but the terms are what is important.
This is a very good way to buy a home. The seller stays on title until the contract is paid in full. Once the contract is paid in full, that is when the seller transfers the title to the buyer.
Advantage #2
2. Housing Stability and Ownership.
With a Contract for Deed, you have stability of ownership. rather than having been stuck with a lease with an option, knowing that in a year or two years, the landlord could come to them and say, hey look I’m sorry things didn’t work out, you couldn’t qualify. And now the landlord says, I have decided I am going to just sell the house and you have to move. That would be an awful position for a family to be in.
Advantage #3
3. Flexible Terms
You and the seller can negotiate and customize the terms to meet each of your specific needs and wants. You can negotiate the length to be anywhere from 1 year to 30 years. You can pay off the Contract for Deed as soon as you want to by getting a new mortgage or by selling the home.
Advantage #4
4. Hedge Against Inflation.
In a few years when you do sell the house any increase in the value of value is yours. Because as a buyer, you have got it locked in for a period of time, and as inflation goes up prices go up
Advantage #5
5. You, the buyer, can make improvements, unlike a renter.
You don’t have to ask a landlord if you can paint a room or finish the basement. With a seller financing contract, the house I yours.
If the improvements you want to make are substantial, it is a good idea to notify the seller because you will want to get a building permit from the city and they will want his approval.
Advantage #6
- At the end of your contract term, you can do a refinance instead of a purchase.
As a result, you can refinance your contract, rather than an underwriter treating it as a purchase. And as a refinance, they can use the current market value as a basis for their loan. Because of that, you may not have to pay mortgage insurance. That is a huge benefit.
In addition, the underwriter may only require one year of tax returns for their refinance. After one year the underwriter will let you get cash out with their refinance. So, the buyer can get additional money for whatever else they want to use it for.
Also with a refinance, even before a year can refinance enough money to do a rate and term refinance immediately. They can use the appraised value and refinance not only the balance of the loan, but you can include in that mortgage the cost of closing costs. So that is a huge benefit.