Let’s say you’re a self-employed business owner, like John, who runs a successful landscaping business in Eagle Mountain, Utah. John’s been eyeing a beautiful house priced at $529,900, and he’s ready to put down 10%. He has a good credit score of 680 and plenty of cash flow to make the monthly payments. But when it comes to qualifying for a traditional mortgage, things get tricky.
In this blog post, we’re going to explore how seller financing can make home buying easier for people like John—those who are self-employed and might struggle to qualify for a conventional mortgage. (By the way, John is just an example to help illustrate the differences—his story is fictional.)
The Problem with Traditional Mortgages for Self-Employed Buyers
For many self-employed buyers, qualifying for a conventional mortgage can be a headache. Even though John’s landscaping business brings in steady income, he, like many business owners, takes advantage of tax deductions to lower his taxable income. While that’s great for taxes, it’s a stumbling block for mortgage lenders.
Here’s why: traditional lenders often don’t care how much money John’s business is bringing in month-to-month. Instead, they look at adjusted income from his tax returns, which can be significantly lower than his actual income. To make matters worse, banks typically average out his income over two years, making it even harder to show he can afford a new home, especially while holding onto his current one.
In John’s case, the bank insists he sell his current home first. It’s frustrating, and the process is full of roadblocks that many self-employed people face when dealing with traditional lenders.
How Seller Financing Works Differently
Now, let’s compare that to seller financing. The house John wants happens to offer this option, and it changes everything for him. Instead of relying on tax returns and adjusted income, seller financing takes a much more straightforward approach. Here’s why:
- Easier Qualification: The seller’s primary concern is whether John can afford the payments—not what his tax returns say. John can explain his situation, and because he’s putting down over $50,000 (10% of the purchase price), the seller feels confident moving forward. There’s no need for years of complicated tax documents or income averaging. If John can afford the payments, that’s all the seller needs to know.
- Flexible Terms: Unlike the rigid structure of a traditional mortgage, seller financing offers flexibility. For example, while John’s 680 credit score might lead to higher interest rates and mortgage insurance with a bank, the sellers don’t base their decision on credit score. Instead, they determine the interest rate based on how much money John is putting down. The larger the down payment, the better the terms.
- No Mortgage Insurance: With a traditional mortgage, John’s credit score would likely mean higher monthly payments due to mortgage insurance. But with seller financing, there’s no mortgage insurance requirement, which saves John money each month.
- Speedier Process: Without all the paperwork and hoops to jump through that come with a traditional mortgage, seller financing often leads to a faster closing process. John can avoid the stress of waiting for loan approvals and simply move forward with buying the home he wants.
Why Seller Financing is the Right Choice for Self-Employed Buyers
The key benefit of seller financing is customization. It’s tailored to people like John who have strong financial situations but can’t easily show it through the typical channels banks require. For self-employed buyers, seller financing offers a much more practical solution, cutting through the red tape and focusing on what really matters—whether you can afford the home.
In John’s case, seller financing allows him to move quickly, avoid selling his current home, and secure the property he wants without all the extra hurdles that come with a traditional mortgage.
Looking for Homes with Seller Financing?
If you’re self-employed and frustrated by the obstacles of traditional mortgage lenders, seller financing could be the perfect solution. Follow our Facebook page to stay updated on homes that offer seller financing. We regularly post new listings, so don’t miss out on finding your dream home without the usual mortgage hassles.