Military Personnel: Should You Consider Seller Financing?

Posted by Lauren Schneider on Friday, December 18th, 2020 at 9:02am.

Should Military Personnel Consider Seller Financing?Seller financing may be an intriguing option for those in the military. Not everyone is suited to the task of seller financing, but a prime benefit is the potential ability to close on a home faster. One looking to sell a home this way may also see a substantial return. However, such an approach is not for everyone, as extra time and energy are required in order to pursue this route.

Buyers may benefit from seller financing in that credit requirements may be quite high during certain times. They can get around traditional lender requirements when opting for a seller to act as the financier. Military personnel may want to explore whether this option will suit their needs.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

Homeowner: Seller Financing

Seller financing means that a seller will also assume responsibility as a lender. While the buyer still needs to offer a down payment, the seller is now able to extend credit toward the purchase price of the home. Additionally, parties sign off on a promissory note and record a mortgage.

Most mortgage loans done in this way also include interest. Buyers are still obligated to make regular monthly payments.

The process of selling a home can be difficult enough without getting involved in seller financing. Those who expect to be deployed may not be able to be physically present or have enough time to devote to this process. Homeowners who have sold a home before and have the financial resources may be better candidates for seller financing. Such a loan does not last for the entirety of the loan. Once sufficient equity is established or a buyer improves their financial situation, they may then choose to go to a traditional lender and refinance their home loan.

Seller financing is a short-term solution to enable those that may not be approved by a traditional lender to become homeowners. In a buyer's market, this may act as an incentive and enable a seller to sell their property.

Seller Financing Choices

With seller financing, a homeowner may be able to offer a few alternatives to a potential buyer. A buyer may suggest:

  • A land contract
  • A junior mortgage
  • An all-inclusive mortgage (AITD)
  • An assumable mortgage
  • A lease option

In any of these situations, the seller retains the deed until all payments have been made by the buyer. Documents such as a promissory note and applicable contract need to be created by a qualified professional.

Veterans interested in buying a home may want to look into the Vendee Loan Program. This offers a seller financing loan product for those interested in purchasing a VA REO property. Individuals may like this idea, as borrowers can put little or zero down, get a competitive interest rate, and have no appraisal requirement. Borrowers may choose from 15- or 30-year mortgage loan terms, and sellers may even contribute toward closing costs. If the desired home is a VA REO property, this seller financing loan product may be a worthwhile option.

Risks for Sellers Acting as Lenders

Lending institutions are used to offering mortgage loan products and are better able to assess a person's ability to make payments on a loan, compared to the average home seller. As an institution, lenders also have the financial resources to handle the situation when a buyer defaults on a home loan. A seller, on the other hand, may have to deal with delayed payments or non-payment without their own significant financial cushion. It is possible to reduce the risks associated with seller financing, such as:

  • Using a loan to secure the home, with the option to foreclose in the case of a default on the loan
  • Requiring a down payment to establish initial equity
  • Mandating a loan application from the borrower and being able to verify all details provided

These measures can help a seller feel more secure in acting as an intermediary lender until the time when a buyer may be able to refinance. Sellers may decide on seller financing to skip the typical mortgage process and move out of their home faster. They may also be able to use the situation to get good rates on other types of investments. Some owners are motivated to sell their home and use their ability to act as a lender.

Pros and Cons for Buyers

Aside from government-backed loans that allow for a small or no down payment, a seller may work with a buyer who cannot make a substantial down payment. Often with seller financing, a buyer will be paying higher-than-average interest rates and will need to make a balloon payment. This large payment is expected after five years and allows the buyer to get themselves into a better financial situation. If a buyer defaults, they lose their down payment, and any previous funds paid, while the seller continues to own the home. Seller financing is a solid choice for those who would otherwise not be approved for a conventional loan at the time.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

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