To help alleviate the situation the option of Purchase loans exist. Another name for a purchase loan is “Seller Financing”. In a purchase loan, the seller of the property extends the option of acting as a substitute for a financial institute and offers the buyer the option to pay installments to the seller directly. The terms, amounts, payments, and all other details are negotiated between buyer and seller directly.

When is a Purchase Loan applicable?

A Purchase loan is offered by the seller directly but it is something that can be requested by the borrower. Since it is an unofficial situation there are no applicable legal stipulations. It comes down to the agreed terms between the seller and borrower. It is because of this reason that purchase loans can sometimes have higher interest rates than traditional loans but on the other hand it is something that the buyer has to agree to first.

Usually, situations, where purchase loans become popular, are when the borrower is having trouble qualifying for a mortgage according to the standards of a financial institution and the seller is very inclined to make the sale of the property. In such a case a purchase loan is convenient for both of them. Another situation could be unrelated to the buyer. During times when financial institutions become strict about mortgage qualifications, mortgage lending becomes difficult and this can affect real estate in the sense that buying houses slows down. Since this would inconvenience sellers they offer the option of a purchase loan to the buyers.

What if the seller has an active mortgage on the property?

If the seller has an active mortgage while they sell the property then they will ask the buyer to make a down payment in order to move in. The monthly payments made by the buyer will be used to continue payments towards the mortgage. In this case, the mortgage remains in the name of the seller.

What if the seller does not have an active mortgage?

This scenario is the most typical when it comes to purchasing loans. Since there is no active mortgage. The buyer makes a down payment and continues making the monthly payments which are part of the purchase loan.

What if the buyer doesn’t have enough funds?

It can happen that the buyer does qualify for a traditional mortgage but isn’t approved for an amount for the full price of the property but only part of it. In such a case the seller can extend a purchase loan where the buyer uses the traditional loan to make a down payment and the purchase loan to cover the monthly payments.