Buying a Home: Lender Financing v. Seller Financing

If you are buying a home, chances are that you are going to need financing. Very few people can plunk down more than $100,000 cash for a home. But what are your home mortgage financing options? There are two main options when it comes to home mortgage financing: lender financing and seller financing.

Lender financing

This is the more common of home mortgage financing techniques. You go to some sort of lending institution (a bank or mortgage and title company, for example) and apply for a home mortgage. For many people buying a home, this makes sense. It allows them to pay for the house up front, and then make payments to the lender. However, it does require a check on your credit score. In order to get terms, you need to have decent credit. And since the subprime lending crash a couple of months ago, home mortgage financing may not even be available to you if you have poor credit.

Seller financing

With seller financing, your home mortgage financing comes from the person selling the house. A mortgage note is filled out, and you agree to pay the seller in payments over a set period of time. Interest can be calculated, and used as part of the loan (check the IRS Web site for tax deductibity of interest in this situation). For a buyer with poor credit, this can be a good option. However, seller financing can be hard to find, as many sellers want all of the money up front, so as to avoid the risk of default.

Whether lender financing or seller financing will work best for you depends upon your situation. It also depends on the options that are available to you. Sometimes neither lender nor seller financing will be available to you.

Tags: credit score, personal finance, financial planning, finances,
financial goals, seller financing, home mortgage financing, home mortgage