If a home has been on the market for longer than average, then a seller might be motivated to offer seller financing to entice a buyer who may not be interested in the house without the seller financing. In this particular situation, the seller financing acts as a motivation tool for buyers if the rate offered is lower than what the buyer could get at a lending institution.
In another scenario, the seller prefers to spread out the money received at a higher interest rate for the purchase price instead of a lump sum. For example, either receive $100 immediately or receive $100 at 4% over 30 years. After 30 years, the sellers gets back $100 in principal plus $71.87 in interest according to an amortization schedule calculator.
Spreading out the selling of the home also reduces the seller’s capital gains tax. Where as a large lump sum could lead to significant taxes.
Lastly, if a seller is offering seller financing, this option could help justify a higher purchase price by making it easier for the buyer. Often times, a buyer might pay the higher price if seller financing guarantees them home ownership of the house they like because they might not qualify for the full loan amount from lending institutions for reasons where a bank appraiser values the house in question lower than the contracted purchase price.
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