At Property Pathways, we pride ourselves on being able to find a solution for every type of buyer and seller. An ever increasing popular trend is something commonly known as a Vendor Finance or an ‘Option’.
Put simply, Vendor Finance is where the buyer signs a contract of sale but doesn’t settle on the property until a lot further in the future. This can be in a few years or any amount of time agreed upon. In this option, the vendor (seller) would keep ownership of the property and their loan for a longer period of time but would collect all the property expenses from the buyer, almost like rent. The buyer will often also negotiate a lump sum upfront deposit for the property which gives the seller access to immediate cash. For example, the buyer could pay, a lump sum payment upfront ($20k or more), the buyer could repay all the costs associated with the home, eg the loan, rates, repairs etc, the buyer can even pay the seller an extra amount of cash each week as well. All the terms are completely up to the seller and the buyer to negotiate and agree upon to suit their individual needs. When the agreed time lapses (eg a few years), the buyer simply pays off the remaining purchase price to the seller, who then pays off their loan, and the property officially settles. The buyer then becomes the owner of the property and the transaction is complete. It is important to remember that legal advice is required with ‘options’ and knowing the right legal team who specialise in this area is valuable. This information is general advice and should be discussed & researched in full to make sure it suits your personal situation. Contact Property Pathways to find out more about these ‘Options’ and much more.
Possible Benefits to the Vendor (Seller):
One possibility is a property owner who may need urgent cash, and isn’t quite ready to move out of their home just yet, or who can’t sell the property in time and can’t then wait the 6 weeks settlement for upfront cash. The seller may also be falling behind in their mortgage repayments and may need an urgent solution to avoid a bad credit rating. A property investor may want to pay an upfront deposit for your home and delay settlement for a few years or even more. This way, the seller gets access to an upfront payment and gets immediate repayments to their mortgage and avoids bad debt. The seller can remain in the property as agreed, which could give them years to decide on their future, when things may be financially more secure. The investor gets to purchase a property at today’s prices, and doesn’t need to tie themselves up in a loan until a lot further in the future. The investor also has time to pay the stamp duty and other costs associated with a purchase including possible land taxes etc. Investors can also then be assured that the people living in the home, who could be the sellers, will take care of the property and of course look after it as their own.
Another possibility could be a seller who owes more on their property than what they can sell it for. This could be due to a low in the market, a second mortgage or a fixed interest rate that has high exit fees. In these cases, rather than falling behind in mortgage repayments and waiting to sell the property, it may be worth considering selling the property with a Vendor Finance option. This way, the loan is kept in the sellers name and the buyer pays all the expenses. This can save a seller from going into arrears with the bank and possibly losing their house to the bank.
- Upfront cash
- All property costs refunded
- Higher selling price
- Mortgage repayments instantly repaid without potential arrears and bad credit history
- Extra income each week in sellers pocket
- Lump sum payment at completion
- Positively geared property, earning them an income
- Sellers can remain living in the home for a long period of time, if the buyer is an investor
- Excellent ‘tenants’ as the tenant becomes the buyer who looks after and repairs the property as their own
- No break cost fees at bank if interest rates are fixed
- No falling behind in mortgage repayments
- Credit history not damaged
- No lump payment to bank if selling price is less than loan
- No more waiting to sell the property incurring interest along the way
Possible Benefits to the Purchaser (Buyer):
A property investor may want to acquire more property at today’s prices without having to pay all the other associated costs until further into the future. A property investor could pay the seller an upfront deposit for their home and agree upon a delayed settlement for a few years. This way, the investor gets a property at today’s prices, and doesn’t need to tie themselves up in a loan until a lot further in the future. The investor also has time to pay the stamp duty and other costs associated with a purchase including possible land taxes etc. Investors can also then be assured that the people living in the home, who could be the sellers, will take care of the property and of course look after it as their own.
Another possibility could be a client who has temporary difficulties getting approval from the banks for a loan. This doesn’t necessarily mean they have problems repaying the loan. The banks could decline a loan application due to many reasons such as not being employed long enough, not having saved over a long period of time, not having a big enough deposit to cover stamp duty and costs, money being caught up in other assets not yet sold, waiting to sell their current home, being on maternity leave, self employed people with no current tax returns, having a bad credit report from an unpaid phone bill or even not being in the country long enough. Most of these problems can be fixed over time but it can prevent people from purchasing a home when they need one, now. With a ‘Vendor Finance’ Option, the buyer can delay settlement for a few years until they are ready to get approval from the banks or save their stamp duty etc. This way, they can buy their home now, and still make all the repayments they would need to if they owned the home, but the loan and property would remain in the sellers name until the agreed amount of time when the buyer was ready.
- Ability to buy without waiting
- Move straight into their home, now
- No need to rent now and move later
- Time to wait to get their mortgage through the bank
- Proof to the bank that they can repay the property costs
- Today’s market price in tomorrow’s market
- Time to save for costs such as stamp duty
- A home NOW, without the wait
There are so many ways you can sell and buy a property and all of these ‘Options’ can be made very safe and secure with the appropriate legal documents. At Property Pathways, we can help a seller find a buyer or help a buyer find a seller so no matter what your situation why not chat to us today. Contact Property Pathways with any potential property difficulty you may have, before it’s too late, and see the difference that ‘People with Passion for Property’ can make.