| Seller financing is a very common technique used by | | | | the seller. |
| the sellers of the property in the US real estate | | | | - The seller may be able to sell his property on an |
| market. It is also known by the name of owner | | | | ‘As-Is” basis without spending anything |
| financing or purchase–money mortgage. As the | | | | towards home improvement or necessary repairs. |
| name seller financing suggests, the seller of the | | | | The seller of the property should assess the credit |
| property would provide finance to the buyer to | | | | worthiness of the buyer. He may ask the seller to |
| enable him organize the necessary funds for | | | | obtain PMI insurance in order to protect his risk. The |
| purchase. The loan provided by the seller may be in | | | | seller may also keep the necessary document like the |
| additional to the normal home loan that the buyer | | | | sale deed or the mortgage deed as a protection till |
| may have arranged from a lending institute. The idea | | | | he recovers his principal along with interest. All the |
| is simple, in case the buyer is not eligible for home | | | | negotiations can be worked out and finalized by way |
| loan or the amount of loan extended by the lender is | | | | of an agreement between the buyer and the seller. |
| not adequate for the purchase, he could rely on the | | | | As far as the shortcomings are concerned, these |
| seller to provide him the balance amount required. | | | | are as under: |
| There are advantages as well as limitation of this | | | | - The buyer of the house faces the risk that even |
| type of financing. Let us look at the advantages | | | | after completion of loan payment to the seller, he |
| enjoyed by the buyer as well as the seller: | | | | may yet not be provided clear title documents. This |
| - The arrangement between the buyer and seller | | | | could be because of certain other loans that the |
| helps them reduce the closing costs on the | | | | seller may have availed by way of encumbrance of |
| transaction | | | | the property which he may not disclose to the buyer. |
| - The buyer of the property may not eligible for | | | | - Seller of the property faces the risk of foreclosure |
| home loan but is yet provided an avenue for | | | | since he relies on the credit worthiness details |
| purchase. | | | | furnished by the buyer |
| - The buyer does not have to incur expenses on PMI | | | | - The buyer of the property does not enjoy the |
| insurance premiums. | | | | services of home inspection or any agency which |
| - The buyer may be able to avail loan for furniture | | | | gives him a fair value of the property, thus he may |
| and accessories contained in the house at the time | | | | end up paying an unusually higher amount for his |
| of purchase. | | | | purchase. |
| - The seller of the property enjoys a higher return on | | | | A Seller financing transaction needs to carefully |
| his investment. | | | | handled and negotiated so that it becomes a win-win |
| - The seller may end up receiving a premium over | | | | transaction for the buyer as well as the seller. |
| the market price in return of the financing offered to | | | | |