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Seller Financing Your Home

Seller Financing Your Home

Buyers and sellers in the housing market nowadays are looking for creative and more profitable ways of buying and selling houses. The seller carryback financing method is one that many buyers and sellers prefer compared to using the more costly banks and credit unions methods.  Some people consider a house sale like competing in a triathlon, but the winners of the race are usually those who get creative.

This article is going to discuss ten main advantages which have made this means of purchase to be popular. Selling a house using owner financing is less costly, creates a shorter marketing period, produces a quicker closing time, and more clearly identifies the true market value of the house.

As we are going to see from the discussion of these advantages in detail, both the sellers and buyers mutually benefit from this method.

  1. The marketing period is shorter – The selling of houses is typically faster with seller financing than going the traditional route. According to a recent in-depth study, it was observed that this method created a sale about twenty percent faster than other houses that were sold requiring the more traditional forms of financing like conventional mortgages from credit unions or banks.
  2. The speed of closing is faster – Seller carryback financing typically speeds up the closing period because there is no underwriting or mortgage needed from a conventional lender and the transaction of the house can close in a very short time.
  3. There are many buyers – Since less than ½ of potential home buyers can actually qualify for a new loan from a bank, the offering of seller financing will attract more buyers to come and purchase houses.
  4. The real market value of the house is recognized – This is because there is a maximization of prices of house and the seller will be able to recognize the actual market value of the house. According to many markets, this is referred to as sales concession.
  5. There are very few restrictions – This is because the seller gets to pick and choose what is important to them. Since the seller makes his own rules, there is no bureaucracy or red tape involved like you would normally see from a large financial institution. These sellers usually attract more buyers on account of the seller’s flexibility when it comes to issues like credit history and others like ratios of debts and incomes.
  6. The cost of financing house using this method is lower – This is mainly because of the presence of many lenders which will lend a small amount of money to borrowers hence eliminating the worry associated with expensive loan costs. This gives more advantage to both the buyer and the seller of the house for they spend less and can divert the remaining money on other things like school fees for their children or for such things as insurance.
  7. The sellers get to earn interest on the loan – Since the sellers are the creator of the loans, they get to receive valuable interest on those loans. And if the sellers are willing to be patient, they can remove any balloons from the seller carry back and increase the length of the loan and thus the amount of long-term interest that they will ultimately collect.
  8. The house is secure – If the borrower ever reaches a time in which he/she is not able to pay the remaining amount of money, the seller as the lender can foreclose and repossess the house. This is because the house itself is used as collateral to back up the loan.
  9. There is the deferral of income tax – When the house is sold and yields profit and is going to be taxed, the seller has a chance to delay amount due when reporting under this method of installment sale according to IRS Publication 537, form 6252. In essence, this allows the seller to defer the amount of tax he owes almost indefinitely so long as he continues to roll his sales over into new properties.
  10. The seller gains a liquid asset – Since the seller is given a promissory note signed by the buyer, the seller can resell that note on the open market to a note buyer. These notes are very valuable, and if a seller ever wants to cash out, there are many note buyers out there that would love to purchase the note from the seller at a discount in exchange for the rights to receive all of that cash flow from the mortgagee.

In conclusion, the sellers are looking for the selling method which is not costly and will enable them to earn the highest amount of profit. Also, it is clearly seen that the sellers and buyers are protected when this method is used for buyers can pay the house in installments and also due to the lower costs, they are both able to save money.