Should you finance your home's buyer?

Should you offer to front the money a buyer needs to purchase your home? It may sound a little crazy, but seller-assisted financing is a viable option for a lot of owners who need to unload their property and can't find a buyer quickly on the regular market.

With seller-assisted financing, you essentially become the new owner's bank. It's often done because a would-be purchaser can't qualify for a regular bank loan due to credit issues or problems with their income (like a short work history or self-employment). They may have the money for a downpayment -- but nothing else. Other times, buyers want more for a house than the bank is willing to approve. There are also situations where the buyer simply wants to unload the house as fast as possible, but a soft sales market makes it hard to find a ready buyer. Offering owner-assisted financing opens up new possibilities and taps into a market of buyers that may be ready to pounce.

But is seller-assisted financing right for you? Consider these points:

  • You are typically free to set your own interest rates, payment schedule and any consequences should the buyer default.

  • It's often cheaper to do because there's no bank, no title company (and maybe no realtor) involved in the process. Closing costs are also lower; there are no "points" or origination fees.

  • The financing period usually only lasts for a short while (typically five years and under). That gives the buyer a chance to straighten out their financing problems and get a regular mortgage.

But the picture isn't all sunny. While owner-assisted financing can help both parties out, there's always a chance that your buyer won't be able to fix their financial problems in the set time. You also suffer through a delay in getting your equity out of the home -- which may be an issue if you need it to relocate.

Before you decide to offer financing to a potential buyer, talk your potential real estate transaction over with an experienced attorney.