Seller Financed Real Estate Deals in Today’s Market Conditions

With stricter banking regulations because of fluctuating economic conditions and an unsteady real estate marketplace, real estate sellers today are carrying back private funding to make their property more salable. When an individual seller or broker finances a transaction out of pocket they are acting as the lender. This is beneficial to the process because the buyer doesn’t have to go through a rigorous approval process, which can prove to be very tedious because of the heightened banking standards today.

Over the past two years, the central bank has conducted several in-depth surveys of U.S. banks. The most recent survey of 55 U.S. banks’ current lending practices and standards revealed that the percentage of banks reporting tighter standards is near historic highs. One of these, found that about 75% of the banks surveyed indicated they had tightened their lending standards for prime, subprime and commercial mortgages. That was up from about 60% in the previous survey.

The Fed’s July survey covered 52 U.S. banks which hold about 80% of the residential mortgages on the books of all commercial banks. The Fed survey found that only seven of the banks said they were still participating in subprime mortgages, loans made to borrowers with weak credit histories. Of those seven, six said they had tightened lending standards on subprime loans with only one saying it had left standards basically unchanged.

Any experienced private lender recognizes this as an opportunity to salvage an unfavorable situation and turn it into a positive one. By utilizing seller financing, sellers can sometimes end up getting more money for their property and collecting interest on top of that. Seller financing can enable homeowners to receive the best selling price despite bad lending conditions. In addition, a home buyer with poor credit is able to become a home owner. It’s one of those rare situations where everyone at the negotiating table gets what they want!

Many real estate sellers never consider seller financing because they don’t understand the advantages or the process. There are also common misconceptions that it’s much too complicated to attempt to put together a seller financed deal, or that there are no buyers willing to sign a private loan. Not true! Once a seller takes the time to learn about the basic process and the advantages of offering private to sell their property, the benefits become very clear: bigger buyer pool, easy loan approval process, and a much quicker closing. Plus, a little education about seller financed loans will make it apparent that drafting a secured private loan is actually a very straightforward process.

The bottom line is seller financing can enable a real estate seller to get the best of both worlds: selling at the desired price, closing the deal quickly, and even receiving additional income from interest payments that the buyer makes.