Vendor Finance (also known as Seller Finance or Owner Finance) is term used to describe a number of ways that you can achieve home ownership without having to first get a bank loan or mortgage.
It also describes ways to start owning and paying off your home even if you have bad credit history or don’t have a standard deposit.
How BANK FINANCE works.
Traditionally, a home is bought through finance from a bank, or other lending institution. The buyer pays a deposit (usually 10%-20%) to the seller and the bank pays the rest to the seller. The buyer and sellers relationship ends here and buyer then pays the loan, or mortgage, back to the bank, over time with interest.
How VENDOR FINANCE works.
Vendor Finance skips the bank. The buyer pays a small deposit to the seller and also makes repayments directly to the seller over time. Depending on the strategy used in the transaction, these repayments may or may not include interest. The purchase price or repayments may be slightly higher that a traditional purchase, but it provides the buyer with the benefit of purchasing when the bank would not. The difference is not very significant over time, if you consider the alternative – renting!
The buyer and seller have an ongoing relationship until the transaction is settled and all money is paid to the seller.
A STEPPING STONE TO FINANCE
Using vendor finance will set you on the path to home ownership, without a mortgage straight away.
The seller might provide finance for the purchase for a period of time, allowing the buyer time to become eligible to qualify for a bank loan. This is great because it means the buyer can start paying off their home from day one and it gives them time to sort out whatever was preventing them from getting a bank loan.
Using vendor finance may enable you to achieve ownership of the property without first qualifying for a mortgage. The Vendor, or seller, of the property will allow you to start paying off the house to them, so you don’t need to settle on the full amount before you move in.
After an agreed time, you will usually be required to, or want to, refinance and get a loan or mortgage to complete the purchase. This could be anywhere from 6 months to 10 years after moving in depending on the individual sale agreement.
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Hear it from a leading lawyer….
Anthony Cordato, from Cordato Partners, Australia’s leading law firm specialising in Vendor Finance explains:
HOW DO I FIND THESE PROPERTIES?
Search or browse the listings on Buy Without A Bank for real estate and properties that are available for sale using various vendor finance strategies.
You can contact the seller of the properties directly through these listings. The sellers are likely to be private individuals or they may be businesses that buy and sell property this way.
Please find out if Vendor Finance is right for you and visit our Frequently Asked Questions page for more information.