Seller financing is a viable option when the seller does not immediately need the entire cash equity they have accumulated in the property. In return for providing financial assistance to the buyer, the seller receives tax benefits, attracts a larger pool of potential buyers, generally completes the sale sooner, and gets good interest earnings. Seller financing also sometimes yields a better sales price. Buyers sometimes have trouble coming up with the down payment and closing costs needed to buy a piece of property. Buyers may be cash strapped in the short term but be perfectly happy to pay more for a piece of property which requires a smaller down payment.
As for the buyer, seller financing offers less rigid qualification requirements and cost savings by eliminating nearly all loan fees. Fear of default often makes many sellers reluctant to take back a second note or finance the entire purchase. A thorough credit check should help to dispel many of these fears, although the mortgage also allows the seller to foreclose on the property in case of default.
A seller may also require the buyer to carry hazard insurance on the property and include a due-on-sale clause, a provision in the mortgage note that allows the seller to demand full repayment if the borrower sells the property. Other financing, disclosure and repayment-term requirements also will need to be met.
It is a good idea to consult an attorney when putting together this kind of transaction.