Millions of homeowners place their properties on the market each year. At the same time, millions of aspiring homeowners set out on a search for the perfect property. Ideally, those on both sides of the fence come together in harmony, and everyone involved walks away from the experience happy.
That being said, real estate can be a complicated field. There are several ways to approach both selling and buying a property, including the conventional route and owner financing with help from a company like MORE Seller Financing, which is an often-overlooked solution. Understanding the differences between the two options can help you choose the right one for you.
Conventional Home Financing
First off, let’s take a look at conventional home financing. This involves buyers obtaining a loan from a bank or other lender. That portion of the process requires credit checks, income verification, and a variety of other measures. It generally has stringent eligibility requirements for potential homebuyers though those prerequisites vary from one lender to another.
Buying a home through the conventional route typically requires a down payment of between 3 and 20 percent of the value of the property. Interest rates for mortgages generally range from around 6 to 7 percent, but those, too, can vary depending on the buyer’s credit history and many other factors. Closing costs also come into play, and those can range from 2 to 5 percent of the cost of the property.
Several parties are involved in the conventional homebuying process, including the buyer, seller, lender, real estate agents, and possibly others. Closing on a home can take up to 2 months in many cases. Upon closing, the lender pays the seller the full value of the property, and the buyer makes monthly payments to the lender until the loan is paid in full.
Seller Financing
Now, let’s delve deeper into seller financing. In this situation, sellers act as lenders though they don’t actually hand money over to buyers. Instead, buyers simply make payments directly to the sellers. There’s usually no need to go through an outside lender to obtain a mortgage loan. Sellers choose the down payments and interest rates they charge, and some choose to forgo them altogether. Sellers also often work with buyers to decide on the purchase prices of properties, monthly payment amounts, and other terms.
Additionally, sellers set their own qualifications for buyers with owner financing. Some choose to perform background checks and income verification, but their requirements are usually much less stringent than those of conventional lenders. Fewer people are involved, and there are fewer hurdles to overcome during the closing process. That typically results in lower closing fees and faster closing. Instead of receiving a lump sum for the sale of a property, the seller receives monthly payments. That gives the seller a steady stream of extra income and has certain tax advantages.
Enjoying the Benefits of Seller Financing
Neither conventional mortgage financing nor owner financing is right for everyone. Still, owner financing can have benefits for both buyers and sellers. It comes with more flexible terms and requirements than mortgage financing. It can also be a faster, more cost-effective process when compared to the traditional route. Seller financing may be better for both parties from a financial perspective as well. Consider the points mentioned here to help you decide which one may be best for you.
