Back in the 1980’s, when banks were charging 14%, 16%, or even 18% for home loans, and buyers were required to have 20% down before they could think about a conventional loan, plenty of homes and property were sold with seller financing.
Sellers generally charged 10-12%, which was a huge savings for the buyers. Some of those sellers also demanded a large down payment, but many did not.
At that time – at least in our small town – the chance of getting seller financing often rested on what the seller thought of you as a person. They did want to look at credit reports, but were apt to put more stock in the way you presented yourself, the way you cared for the home where you were presently living, and even who your parents or grandparents were.
Later, after banks dropped their interest rates, those who could qualify often purchased homes with bank financing. But unless the buyers had cash, we still sold our unimproved land with seller financing. The banks simply refused to finance land without a house.
I predict that seller financing will once again become common.
Why? Because in certain situations, seller financing may be the smartest move for all concerned. I also predict that sellers will go back to the old way of deciding whether a buyer is credit worthy. Sellers will look at the person, not just the credit score.
What situations fit?
First, the house (or land) needs to be free and clear. How Does A Pledge Loan Work Most mortgage lenders frown on wrap-around contracts.
Second, the seller must not need the money in order to get on with life.
It fits for investors, those who have inherited houses, those who own rentals and are tired of caring for them, and those who are selling a second home.
For buyers who want to purchase fixer properties, seller financing will be a Godsend, because they won’t be required to submit reams of paper to show how they’ll do the work.
The basis for my prediction is that in the right circumstances, it will benefit both parties.
Seller financing will allow more buyers to own homes. Right now we’re seeing well-qualified buyers who can’t get good loans because their credit scores have dropped in reaction to the banking crisis. When credit card issuers began reducing credit lines and canceling unused credit cards, thousands of responsible, bill-paying citizens became victims. It’s crazy to think that you could hurt your credit by not owing money, but that’s how the system works right now.
We’re also seeing investors who are getting next to nothing as a return on invested funds, so seller financing is becoming an attractive alternative.
When you can earn 6, 7, or 8% interest by taking a note on a house, it makes a lot more sense Articles About Money Management than taking cash for that house and investing it for a return of one-half percent – or less.