With mortgage rates on the rise, more and more buyers are struggling to obtain loans. Given this, an infrequently-used financing option is starting to make a comeback. Seller financing is an process in which the seller of a property offers to carry the mortgage, and the buyer will then owe the seller rather than a lender. This doesn’t have the same stringent requirements that mortgage loan approval has, so it’s much more accessible to buyers.
Seller financing tends to be attractive to buyers. Not only is it more accessible, but the interest rate is usually lower. It also doesn’t incur any fees such as loan origination fees. But why would a seller want to do this? Well, there are a couple reasons. Firstly, because seller financing is so attractive to buyers, it can improve the property’s marketability. There’s an additional benefit, though. It allows the seller to defer part of the taxes on sale profits. The seller only pays taxes on the principal as it is received. At the time of sale, they pay taxes on only the amount the buyer paid. This can include the down payment and any partial loans the buyer received.