How does Seller Financing work?

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How does Seller Financing work?

We currently rent our home. We have 6 months left on our lease, but our landlords just told us they want to list the house for sale in 4 weeks. We would like further information on Seller Financing to see if we should even approach them with this option. My husband and I have too low of credit scores to gat a loan and don’t have a significant down payment available in such short a time, so we can’t get a loan. He is a 100 disabled veteran, so we do have use of the VA Home Loan program, which seems to be more of a cosigner than an actual loan option. Purchasing the home was discussed when we moved in, but it was also determined that it would take us at least 1 year to 18 months to come up with the down payment. At this point we don’t quite know what to do. My husband needs a stable home environment due to his conditions, and obviously we do not want to move or have people in and out of the house for showings all the time. So we saw vague information on Seller Financing and would like to see if it is worth discussing with our landlords.

Asked on April 5, 2016 under Real Estate Law, Maryland

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

In brief, seller financing is simply buying on time from the seller. Say that the home costs $300,000: the seller could sell it to you for, say, $10,000 down and $1,200 per month for the next 30 years, with the $1,200 per month being both principal and interest. (In this scenario--which is purely for the sake of illustration; I have not run the numbers--you'd pay around $440,000 or so over 30 years for the home.) The seller could retain a security interest and could foreclose, same as a bank could, if you fail to make your payments.
Seller financing is completely voluntary: it has be a good deal for the seller for them to consider it. Typically, it's only a good deal for them if--
* they don't have a mortgage on the property which they have to pay off;
* they can afford to wait for their money and/or prefer an income stream to a lump-sum payment;
* they can't readily sell the home to someone who could qualify for more traditional financing
* etc.
You can certainly broach the subject with them, but bear in mind that very few sellers want to finance their homes and be subject to the risk of nonpayment, having to wait for their money, and the trouble of collecting (and if necessary, foreclosing).
 


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