If you’re in the market to sell your home, you may have heard some talk of seller financing. Although this is a less common selling method, if you meet the criteria it could be a great opportunity. Seller financing takes place when an owner-financed deal is offered to the buyer. Terms of the loan can vary because it is an agreement between the buyer and the seller. Both the buyer and the seller should consult with legal representation before the sale is finalized to ensure both parties’ interests are protected. If you think seller financing may be for you, read our brief overview of pros and cons below.

Qualifications

• The home must be owned by the seller or the seller must have cash to pay off the existing mortgage

Pros

• Guaranteed return of the interest rate agreed upon
• Ability to charge a higher interest rate than banks
• Seller has the ability to reclaim the house if the payee defaults on the loan
• A larger down payment may be agreed upon between the buyer and seller
• Tax breaks available to seller
• Seller has the ability to sell the promissory note
• Secured monthly income
• Elimination of repair costs

Cons

• Money is not received as a lump sum up front, but as monthly payments over the course of the loan
• Typically working with a buyer with low credit (unable to obtain a mortgage)
• Can be a risky investment
• Possible foreclosure if the seller does not make payments
• Possible abandonment if the buyer leaves the property