When purchasing a home you need to finance the purchase somehow. It’s rare that a buyer would have the entire purchase price for a property and in times where the banks are toughening their lending criteria it’s great to have other options.
Vendor finance is a way of purchasing a property and the seller (or vendor) is actually the person lending you the money. Vendor finance is most common in large developments but can occur in any situation – even the purchase of a single apartment or house.
If you are provided with vendor finance the title of the property stays in the name of the seller (or vendor) until you have made all repayments and paid back the entire loan. Vendors have the flexibility of deciding to what level they will finance the purchase and can lend as much as 100% of the total purchase price – it all depends on the deal you can strike. Here are a couple of questions and answers that might make the arrangement a little clearer:
1. How can you stop the Vendor from selling the home if it is still in their name?
The vendor’s name on the title deed can make some people feel uncomfortable, but there is no need for alarm. A caveat is put on the title to stop the vendor from selling the home whilst you are making your payments – you are protected.
2. What happens if the buyer cannot repay the money to the vendor?
The vendor is protected in the sense that they “own” the home until you make every repayment. The vendor has the right to commence legal action so they might take the house back or may choose to sell it to recover the monies owed in the same way a Bank would.
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