Vendor financing Australia has been an accepted way to buy property in Australia for more than a hundred years.  Vendor financing is a growing alternative for people to purchase their home using finance from the seller of the home.  Vendor Finance serves as the only viable option that suits people who do not qualify for a home loan and they want to own a home. The properties under vendor finance are also called ‘wraps.’ The purchaser under vendor finance system does not become the legal owner of the house until the final installment has been paid.   

Vendor Finance comes into play when:

• Buyers do not have enough savings for a big deposit
• Self employed with no proof of stable income
• Have credit problem or no credit history

How does Vendor Finance Australia work?

The home seller will sell his house obtained by a conventional home loan to a buyer on vendor finance terms.  The seller and buyer sign a contract on the vendor’s terms agreed to by both.  The interest rate that the buyer pays is typically 2% higher than the original rate for home loan paid by the seller.  The buyer’s interest payments wrap the vendor’s and the vendor also makes a profit on the sale price of the house in addition to the margin on the interest payment. The purchaser can make additional payments or make improvement to the house to increase the equity in the house. The purchaser of the house also benefits in the vendor finance system as he can have access to home ownership at a slightly higher cost which otherwise he would not have access to.  The buyer also builds equity in the house and stops paying dead rent.  The buyer also lives in the house which would eventually become his own.  Prospective home buyers who have difficulty in securing finance can consider vendor finance as an alternative way to owning a home.

As vendor finance Australia has different set of terms for the transaction it is advisable to look for vendors who are members of the vendor finance association.  The association has set out guidelines and codes of ethics for the vendor finance providers to safeguard the interests of all concerned.  The purchaser should seek the help of a solicitor to ensure the accuracy of the transaction. The purchaser should be regular in payments and the home becomes his own only after all the payments are fully paid.  Defaulting may cause serious consequences leading to losing the property.  You may lose deposit along with all the installments paid along with the property.  Your credit rating will be severely affected.  It is important for the buyer to understand the terms of vendor finance and that he must pay higher rates of interest that may eat into a major portion of his income.

For many Australians with no access to traditional home loans, vendor finance Australia comes as an alternative as it is a win-win situation for both the buyer and seller of the house.