Some Sellers Offer Financing to Get Deals Closed
Buyers who have a foreclosure or bankruptcy in their credit past wouldn't be a likely candidate to secure financing from a bank anytime soon for a home purchase. As a result, some sellers are stepping in to offer seller financing to get a home sold.
Seller financing, once popular in the 1980s when mortgage rates spiked to 18 percent, is making a comeback in areas flooded by foreclosures and where tight lending standards are keeping some buyers on the sidelines, reports Bloomberg News.
"The market is locked up because there's no financing," says Gordon Albrecht, executive vice president of FCI Lender Services Inc. "This is moving houses."
Last year, 52,991 U.S. homes were purchased with various forms of seller financing--a 56 percent jump from 2008, according to the REALTORS® Property Resource LLC. In 2010, such deals made up 1.5 percent of all transactions.
One popular form of seller financing is known as a land contract, which is when a buyer takes possession of the home but the seller holds the title until the debt is completely paid off. The loan's terms--such as down payments and interest rates--are negotiable. These arrangements usually consist of a balloon payment in five to 10 years, which is when buyers will have to repay the seller or lose the home, along with any money they already put into it.
Source: "Home Sellers Become Lenders to Poor-Credit Buyers," Bloomberg (May 11, 2011)