In one of the more interesting quirks of the housing market crash, it appears that a growing number of sellers are stepping in to offer mortgage financing to potential buyers in order to actually get their home sold.
With more foreclosures and bankruptcies blotting the credit histories of so many potential buyers, it’s become incredibly difficult for these people to get the mortgage financing they need to get back in the property game.
Seller financing, which hit a purple patch back in the 1980s at a time when mortgage rates hit 18%, is becoming in vogue once again in parts of the US that have been swamped with foreclosures and where many buyers are being barred from the market by strict new lending standards.
“The problem with the market is that it’s largely stagnated because nobody is willing to give anyone any finance,” said FCI Lender Services Inc. vice president Gordon Albrecht.
Over the last year, almost 53,000 homes in the US were purchased with the assistance of some kind of seller financing, a jump of 56% from the last available figures in 2008, according to statistics from REALTORS Property Resource LLC.
Such deals totaled 1.5% of all real estate transactions in 2010.
One of the more popular kinds of seller financing is what’s known as the ‘Land contract’ – basically, possession of the property is given to the buyer, but the seller retains the deeds to the property until the debt has been repaid.
Terms of the loan, such as interest rates and down payments, can vary considerably as these are negotiated between the buyer and the seller.
Such arrangements are usually spread out over five to ten years, during which time the buyer of the home has to completely pay off the debt or risk losing the home, as well as everything they have put into it up until then.