With credit markets> still tight, hopeful homeowners and their buyers-to-be are reviving an old tactic: "seller financing." In these deals, last popular in the 1980s when mortgage rates hit double digits, the seller and the buyer agree on a payment schedule, with no bank involved. Agents say the homespun option is the only avenue for some buyers in this tight-fisted lending climate, but the logistics can be a bear. Here's what you need to know.
Down payment: In today's market many banks have returned to asking for 20 percent down; offer less and you'll probably have to pay for private mortgage insurance, which adds up to half a percentage point to the loan. In seller financing, the buyer can put down less than 20 percent -- without the PMI. Still, says real estate attorney Jon Goodman, of Boulder, Colo., "the buyer needs to have skin in the game -- the more, the better." Homeowners will typically want a down payment of at least 10 percent as protection against default.
Interest rates: Most private sellers charge slightly above market rates since they're shouldering more risk -- particularly if their would-be buyer got rejected for a bank loan. But with home prices still in the tank, some owners are offering lower rates to buyers who agree to meet their price. And keep in mind: Most seller-financed deals expire in five to seven years -- 15 at the most -- and finish out with a balloon payment.
Due diligence: When there's no bank involved, title insurance becomes even more important. Usually available for a few hundred bucks, it digs up tax liens and other claims that could affect a property transfer. A current appraisal, credit report and background check are also smart moves. After all, there's no institution behind this deal -- it's just you and the other guy.