Q. What is seller financing?
A. Seller financing literally means that you, the seller, finance the buyer’s purchase of your home. You essentially become the buyer’s bank.
You lend the buyer the money to purchase your home, and he or she pays you back each month by making a mortgage payment that usually consists of principal and interest.
If done correctly, seller financing can work out beautifully for both you and the buyer. The benefits to the buyer include: quick and easy loan approval; a competitive interest rate; lower (or no) fees than a bank or savings and loan; and less paperwork.
Seller benefits include: The equity in your home becomes an investment on which you earn an excellent, stable rate of return compared to many other forms of investment; you have had an opportunity interact with the borrower; and the loan is secured by an asset — your house — that you know extremely well.
The detriment to seller financing is the risk; if the buyer defaults on the payments, you will need to bring legal action to get either your money or your house back.