Vendor Finance

WHAT IS VENDOR FINANCE?

Vendor finance, or otherwise referred to as seller finance or owner finance, is now becoming more and more popular for buying and selling real estate in Australia.

Vendor finance terms are a great alternative to buying and selling real estate for a variety of reasons:

Vendor finance provides solutions outside of the strict rules of cash sales and cash purchases.

Vendor finance solves some of the difficulties that buyers and sellers can face with low deposits, obtaining bank loan approvals, and minor credit defaults.

Vendor finance means sellers and buyers can make their own agreements, without making the sale dependent on a bank giving finance to the buyers.

Vendor finance is quick – Buyers can move in as soon as they satisfy the seller’s requirements.

Vendor finance means that buyers can renovate their house (whether it be by painting, landscaping, or any other way that may improve the property) knowing that they will reap the benefits as the contractual value of the house will not change with these improvements.

Vendor finance paperwork is very similar to the paperwork for standard sales; it just has a slight twist.

IS VENDOR FINANCE LEGAL?

Yes, State and Federal laws provide legal frameworks for vendor to finance for homes in Australia.

Vendor finance is used when sellers are looking to sell a property quickly and easily, for a good price. It is also used when buyers are looking to escape the rental market and buy their own home on affordable terms.

HOW DOES VENDOR FINANCE WORK?

Instead of sending the buyer away to find a bank loan to purchase a home, the seller will be the bank and finance you themselves. This will provide you with a home of your own on affordable terms.

Vendor finances provide a personal service which matches and betters what the banking system has to offer because the buyer and seller work together to tailor a solution that meets the requirements of both parties.

Vendor finance focuses on the buyer’s capability to make regular payments rather than jump through the hoops that banks have in order to obtain their loans. Vendor financers will often loan to people that banks won’t touch. Such as those who are self-employed, have low deposits, or have ‘black marks’ on their credit file (meaning minor blemishes, not bankruptcy)

Vendor finance is considered to be a bridge to the banking system. Most will encourage the buyers to obtain mainstream finance once they have established a good track record of making payments and perhaps once they have built equity in their home by making home improvements. The recommendation is usually a 2 to 3 year period.

INSTALMENT SALES

Instalment sales are where the owner of the property sells the property under a Contract for Sale and finances the sale themselves. Instalment finance has the look, smell and feel of a real bank loan. The term is usually 25-30 years, with the repayments consisting of the principal and interest, and the purchaser can pay out the finance at any time by refinancing or by selling the property. The interest rate is generally 2% pa above the bank rate and will rise and fall in line with bank’s rate. The payments can be made weekly/fortnightly/monthly by direct debit or paymaster’s authority.

WHAT’S THE DIFFERENCE BETWEEN VENDOR FINANCE AND A BANK FINANCE?

IF INSTALMENT FINANCE IS PROVIDED BY THE OWNER, the owner retains ownership (the title to the property remains in their name) until the instalment finance is refinanced or sold by the purchaser…

IF A BANK LENDS THE FINANCE, it needs to take out a mortgage over the property as security for the loan because the ownership of the property is in the name of the owner, not the Bank.

The purchaser using instalment finance has all the advantages and obligations of an owner. The advantages are that the purchaser can move in once the contract is finalised and is able to make improvements to the property to increase their equity. The owner/lender has no claim to the increased equity of your home after the sale date. The obligations are to pay for all maintenance and repairs, and also to reimburse the owner for outgoings such as Council Rates, Water Rates, Strata Levies and Building Insurance Premiums.

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