 TITLE: What Is Seller Financing on a Home? CONTENT: Pros and Cons of Seller Financing\n---------------------------------\nJust as with a traditional mortgage, seller financing comes with pros and cons.\nWhile many of the details will depend on the agreement reached between buyer and seller, possible pros of seller financing include:\n*   **Simpler access to credit**: Seller financing may allow a buyer to get a home loan when it's not available from a traditional lender because of poor credit or other hurdles.\n*   **No minimum down payment**: A seller-financing deal may not feature a minimum down payment, unlike traditional mortgages, though some experts advise sellers to collect a down payment of at least 10%.\n*   **No mandated credit check**: Some sellers may not check a buyer's credit report.\n*   **Low closing costs**: Closing costs may be lower with seller financing than with a traditional mortgage.\n*   **No private mortgage insurance**: Sellers may not require private mortgage insurance (PMI), which traditional lenders typically mandate if a buyer makes a down payment of less than 20%.\n*   **Negotiating power**: A buyer may be able to obtain better terms, such as a lower interest rate or longer repayment schedule, than they'd get from a traditional lender.\n*   **Speedier transaction**: Seller financing may be finalized more quickly than a traditional mortgage.\nDespite potential benefits, seller financing is a riskier approach to a home purchase than using a traditional mortgage lender. Potential negatives include:\n*   **Hefty down payment**: In an effort to protect themselves financially, some sellers may ask a buyer to provide a down payment of at least 20%.\n*   **High interest rate**: Because they're taking on significant risk, some sellers may charge an interest rate exceeding the average interest rate charged by a traditional lender.\n*   **Overvalued home**: If a seller doesn't order a property appraisal, the buyer may wind up paying too much money for the home.\n*   **Less buyer protection:**: Because a seller, rather than a traditional lender, extends the loan, the buyer may have fewer consumer protections available under state and federal laws. The purchase contract may also contain provisions and language that increase the buyer's risk.\n*   **Short repayment period**: A seller-financing loan may be offered with a short term, such as five years, rather than a longer traditional term, such as 30 years. At the end of a short repayment period, you may be forced to refinance the loan if you cannot pay a potentially required balloon payment or complete the loan term as agreed.\nBecause of the increased risks of purchasing a home directly from the homeowner, buyers should hire an attorney, if possible, to make sure their rights are being upheld in a seller-financing agreement.  \nDoes Seller Financing Affect Your Credit?\n-----------------------------------------\nPayments made on a seller-financed loan may not show up on your credit report. Banks and other mortgage lenders normally report payment activity to credit bureaus, but a seller-lender might not. While this means an occasional late payment may not hurt your credit score, all your on-time payments won't help it as it would with a traditional mortgage.\nTo report activity to a credit bureau, a lender typically must operate as a business. If you're not sure whether your seller operates as such, you can ask them and also request that they report your payment activity to the credit bureaus if possible.\nWhile a seller might not report payment activity to credit bureaus, negative marks still may end up on your credit report if you default on the seller-financed mortgage. If you fall behind on payments, the seller-lender may pursue a court judgment against you or may turn over your account to a debt collector. In both cases, those moves may be shared with credit bureaus and appear on your credit report, damaging your credit score.  \nIs Seller Financing Right for You?\n----------------------------------\nMaybe you'd like to buy a home that costs a bit more than you can afford. Or perhaps you can't qualify for a traditional mortgage. In either case, seller financing may be an attractive option. You also may find seller financing is a good route if you can't come up with a big down payment, hope to score a low interest rate or want to avoid thousands of dollars in closing costs.\nBut those potential rewards must be balanced against the risks, such as onerous contract terms, the possibility of a higher-than-normal interest rate, needing to make a massive down payment, or being locked into a short repayment period.  \nOther Homebuying Options\n------------------------\nBefore you commit to a seller-financing agreement, do your research. Having little money for a down payment or a credit score that could use some work doesn't mean a mortgage is out of the question. In fact, certain programs help buyers who need a little extra assistance to purchase a home. Here are four alternatives to seller financing:\n1.  Conventional mortgage: These mortgages are private loans, not government-backed loans. To qualify for a conventional mortgage, you typically must have a credit score of at least 620.\n2.  FHA loan: An FHA loan, backed by the Federal Housing Administration, features lower credit score and down payment requirements than conventional mortgages do.\n3.  VA loan: Guaranteed by the U.S. Department of Veterans Affairs, VA loans are available to military veterans, servicemembers and some military spouses. Benefits of VA loans include no down payment requirement (for qualified buyers) and no PMI.\n4.  USDA loan: A USDA loan, guaranteed by the U.S. Department of Agriculture, is designed to make homebuying more affordable for low- to moderate-income consumers in rural and suburban areas.\nThe Bottom Line\n---------------\nWhether you choose seller financing or another mortgage option, be sure to obtain your free credit report and free credit score from Experian so you can ensure your finances are in the best condition possible to qualify for the best lending terms. If your credit needs work, take steps to improve it before starting the homebuying process. Whether or not you finance your new home through a seller, a good credit score could save you thousands of dollars over the life of the loan—especially if you end up going the more traditional mortgage route. END