Vendor Finance is a type of finance that is offered by a vendor (seller) to a buyer to finance the purchase of a property. When vendor finance is used, the buyer has a loan with the vendor and not with a bank or other conventional lenders. This system is officially recognized in Australia.  The vendor financing companies will work with real estate agents, investors and landlords to help people buy homes who do not qualify for bank mortgages. Naturally, vendor financing costs slightly more than bank financing. There are people who dream of a home of their own experience a lot of difficulties in getting finance to buy a home. The strict lending criteria of the banks and financial institutions prevent people from securing adequate finance for buying a property. Those who cannot afford the large initial deposit required to secure a home loan. This is why vendor finance is quickly gaining popularity in residential property markets.
 
Vendor Finance is usually made in 3 common forms:

1. Instalment Finance
2. Rent to Buy
3. Vendor Deposit Finance

Instalment Finance is a vendor finance transaction where the purchaser immediately occupies the house after signing the contract paying a small deposit. The balance of the price is paid in instalments as per the agreement. Rent to buy is also known as rent to own or lease option. The purchaser rents the house and pays the rent plus a separate amount towards the deposit for the option to buy the property later at an agreed price. The purchases can change his mind but will lose the option money he has paid. This is equal to a part of the initial deposit that he would have paid in a conventional mortgage. The seller has to sell the property only to the buyer with whom he has entered into this contract. Vendor deposit finance is made towards mortgage deposit to buy a property in addition to the finance that a purchaser already has secured from another lending institution. This deposit finance should be repaid within 2 to 5 years with interest.

Who can purchase vendor finance homes?

Normally those who have difficulty in getting bank approvals as they do not meet their strict criteria.  

You can go for vendor finance homes if you are

• Self employed, sole trader or a business owner
• Do not have enough savings to pay the deposit for mortgage or home loan
• Your credit history is bad
• You are divorced
• You are new to the country

The First home owners grant (FHOG) and the First home owner bonus (FHOB) can be used for the vendor finance home ownership scheme.