- Posted 02 Jan
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So you’ve decided you’re ready to make the leap into home ownership. If you’re in the process of navigating the waters of home finance, you’re probably looking into every possible option to buy your home.
This is going to be one of the biggest investments of your life, and, it can be very daunting.
There are many products that your mortgage broker or bank can offer you to help make the process easier, and hopefully, less daunting. One product they may not bring to your attention, however, is “vender finance”, which is an alternative to traditional borrowing from a bank or lender.
What is this unconventional home finance option?
Vender finance, also known as seller finance, is a way to become a home owner without actually getting financing from a bank or other type of lender. It works like a mortgage, in that you’ll need to make a deposit and then make consistent payments throughout the life of the finance option. It cover’s agreements such as rent-to-own, instalment contract (wrap) or help with financing your deposit.
The difference is that instead of repaying a loan to a lender, you’ll be paying it to the seller. In this way, you are, in essence, skipping over the lender or mortgage broker – removing the ‘middle’ man.
How does it work?
You will come to an agreement with the seller regarding the specific details of the repayments. The repayments often do not include interest. In this case, the purchase price and/or repayments may be higher so as to provide an added benefit to the seller. This is because they are not receiving a large “lump sum” payment for the property at closing like they would normally if it were a traditional sale through a bank or other lender.
Vendor finance can have different terms and at some point, may require you to get access to a traditional mortgage. Always ensure that you understand the terms of the agreement before you sign anything.
Is Vendor Finance right for you?
Vender finance may be for you if you’re looking for a way to improve your borrowing power and be in a better position to get a home loan further down the track. A lot will still be riding on your credit history, employment, assets and other elements of your financial portfolio.
If you have a poor credit history or lack of a credit history, this could be a good option for you, short-term. It’s important that you review all your options before taking up vendor finance, as it is one of the more expensive options outside of traditional home loan finance.
If you do have poor or no credit history, the regular payments of vendor finance will allow you to build a record of repayment history. This will help you to qualify for a mortgage in the future, and it also means that the seller only needs to provide financing for a shorter period of time.
There are various types of Vendor Finance, such as rent-to-own, but these options are not for every buyer or every seller for that matter.
This is a rather unconventional approach to home finance, but if you find a willing seller, it is a viable route to homeownership.
If this were a route you would like to consider, its best to consult with a home loan professional in the first instance. Here at Australian Credit and Finance we will be able to supply you with the crucial financial advice you’ll need to manage this unconventional approach, regardless of what avenue you choose to take. Get in touch with us today to start the ball rolling!