Seller Financing: Is it the Right Answer for You?

If you have been checking out the homes that are currently available for sale, you may have noticed that some sellers offer the oh-so-tempting "seller will finance" offer. Although this sounds like a great deal, there are a few things you should know about this type of scenario before you decide that it is the right option for you.

The Benefits of Seller Financing

When seller financing is orchestrated properly, it can be a true win-win situation for everyone involved. In fact, there are many potential benefits associated with this arrangement for everyone involved. Here is a look at a few of the benefits of seller financing:

• It speeds up the process of securing financing, as the approval process for traditional mortgage loans and FHA loans can last several weeks
• It makes it easier for you to get a home because the seller is motivated and wants to get the process completed as quickly as possible
• You may be able to arrange a lease-to-own arrangement with the seller if your credit isn't go enough to qualify for a loan

Of course, these benefits are not givens, as there is no guarantee that the seller will be willing to work with you to this extent. Nonetheless, a seller that is offering seller financing is usually willing to do more negotiating regarding financing than one who is not offering this option.

The Downsides of Seller Financing

Just as there are many potential benefits to seller financing, there are also several possible downfalls to this arrangement. Some disadvantages to seller financing include:

• You cannot complete the deal without a down payment, as most sellers will want at least 20% in order to go this route
• You won't find the best deals when you take advantage of seller financing, as short sales and distressed properties still offer the best prices
• There is little wiggle room in terms of the price of the house, as most owners who offer seller financing generally are not willing to give you a break on the price while also giving you the loan
• Seller financed loans generally have a higher interest rate because the seller wants to encourage you to refinance the loan as quickly as possible; some may even require you to get the loan refinanced by a specific date

The bottom line is that seller financing can be a good or a bad idea depending upon your specific situation. Therefore, you shouldn't automatically assume that a property that is backed by a seller financing option is the best route to go. Rather, explore all properties that meet your needs and your budget before settling on the property that you want to purchase. If it so happens that the property where seller financing is being offered is the one you are the most interested in, consider this as one of your many financing options and explore all other choices before coming to a final decision. This way, you can be certain you are getting the best deal and the best financing system to suit your situation.