Seller Financing
Offers of “seller financing” (a/k/a owner financing) have been popping up more and more in ads listing Fredericksburg, TX real estate for sale. What can this mean for a buyer or seller?
For a seller, it is a way to differentiate your offering to the buying public. While it can often be interpreted as a “hint” that you are “motivated” (not always a good card to play), in today’s challenging market, who cares! If you weren’t “motivated” your property wouldn’t be on the market in the first place.
Savvy seller’s have learned that an offer to finance a buyer’s purchase of your property can be a nice way to bank some cash (down payment), receive a pretty good return on your investment (the interest rate charged) and retain the possibility of regaining ownership of that property in the event a buyer defaults on the note. The keys, of course are the creditworthiness of the buyer and the negotiated down payment (generally 20% or more) and the interest rate (typically, slightly higher than published mortgage rates).
Of course, a creditworthy buyer will compare your terms to that they might receive from a financial institution. It is likely that (all things being equal) they will opt for bank financing. In the current lending environment, however, potential buyers with available cash and “decent” credit (i.e. not “sterling credit”) may not have the option of shopping around for financing.
The questions a seller must ask when considering this are: Do I need 100% of my cash now? What will I do with that cash if I get it all now? Do I have a mortgage to pay off? Will a buyer’s down-payment pay off my current mortgage? What kinds of competing returns can I receive on my funds?
The bottom line for seller’s is that the option to provide financing to a potential buyer sets you apart from the competition, expands your pool of potential buyers and allows you options on handling your sales proceeds.
A buyer considering negotiating for seller financing faces many questions. First and foremost is whether or not the financing offered is competitive with other, more traditional, lenders. Be sure to factor in fees, points and all the other miscellaneous fees lenders charge when comparing the bottom line. ( e.g. a seller typically won’t charge an “origination fee” so common to “traditional” lenders). The savings can be significant.
As noted, a buyer today with less than perfect credit often will not qualify for the low rates advertised (without paying substantial “buy-down” points, etc.) and seller financing may be a very legitimate (or only) option.
Flexibility and creativity are keys in selling (and buying) real estate in our current market. Fredericksburg, TX is no different. Be sure you work with an agent that is familiar with the ins and outs of all aspects of these important transactions.
