You may be tempted to lend the purchaser money, if you want to sell your house fast, and the price is above what most buyers can afford. Before you do, ask yourself the question why finance the sale of your home, if the banks won’t? Perhaps the purchasers have a compelling story why you should help them. In this case, you should benefit from knowing more about how seller financing works.
Things to Know Before You Finance the Sale of Your Home
Vendor home finance become popular after the American housing bubble burst following the subprime crisis of 2008. Financial institutions became cautious about lending decent people money to acquire an apartment or a house. Since then, the market has more-or-less recovered, although we all still want to buy a little more than we can afford.
Hence, a potential home-seller-financer needs to know why their buyer is unable to borrow the full purchase amount, less perhaps the deposit they must put down. Perhaps, they are simply aspiring to stretch themselves to the limit. However, there could be something else about the character of the buyer, which could cause you to decide not to fully or partly finance the sale of your home to sell your property fast.
The Two Main Types of Home Vendor Financing Schemes
The schemes we discuss here are very different from leasing with an intention to buy, otherwise known as renting to own. In both cases, the interested party hopes to lock-in the price, and secure occupation until they qualify for a loan. However, when you finance the sale of your home yourself, you could lose your title to the property, unless you are careful. Here are the options you face:
# If you assume the role of mortgager under a vendor-take-back-mortgage agreement, your purchaser could have a right to legal ownership of the property, and even sell it on. You could prevent this happening by having a lawyer register a caveat on title. However, convincing a defaulting buyer – or their purchaser – to vacate can spin off into a messy, legally expensive business.
# If you decide to retain title under an open loan agreement, then the purchaser faces the risk of losing everything in the event a creditor sequestrates you. You also want to get your hands on your capital as soon as possible without allowing your property to possibly deteriorate. Hence, in both cases it is best to agree a small advance only, and for no longer that a few years.
It may make more sense to sell your property outright, than attempt to finance the sale of your home yourself with the attendant risks.