Seller Financing: Is it the Way to Go to Sell Your Home?

Seller financing is just like it sounds. As the seller, you hold the note or the mortgage on the property (so you're like the bank) and the buyer pays the monthly mortgage payment to you. In today's tumultuous real estate marketing and lending environment, seller financing is making a comeback in popularity because it can benefit both the seller and the buyer.

How seller financing works
The thought of financing a property strikes fear in the heart of 90 percent of sellers because only about 10 percent use it as an option to sell their home. It is a selling point that can help you sell the property faster and easier. With stringent lending guidelines, borrowers that may have trouble finding a mortgage lender can turn to seller financing as an option.

It's all done as a legal transaction, so you'll need to have a professional contract agreement and promissory note drawn up and signed by you and the buyer. All of the terms and conditions of the loan are spelled out and agreed to by both parties and the mortgage is recorded in the county records. So far, everything is the same as if you're the bank lending the money to the buyer to purchase the home you're selling.

Where it becomes different is the terms and conditions of the loan. Seller financing typically has a shorter term than a bank loan. A seller financed mortgage may have payments amortized over 30 years, but it works more like a balloon mortgage because at the end of five years, the note becomes due. Seller financing usually works best when the seller doesn't have an existing mortgage on the property. Sellers that have a mortgage on the property have to get approval from their existing lender before seller financing is an option.

Is seller financing an option for you? It depends on your personal financial situation and needs. If you can delay receiving the total sales price at one time (or what's left after paying off your existing mortgage on the property) and it helps to sell the home faster, seller financing could be the way to go. Today's turbulent times are making it harder for some buyers to obtain the financing they need to buy your home, so it is something to at least consider.