There are four ways to finance a home in a Real Estate Purchase Agreement. The option you choose depends on the buyer and seller's financial positions.
1. Third-party financing
A bank or other lending institution provides a loan the buyer must repay over time. This is the most common way to purchase a new home, but approval depends on the buyer's credit rating, job history, and current financial situation.
2. Seller financing
Sometimes, a seller provides financing to a buyer who’s unable to obtain a loan from a financial institution. This is often the case when a seller has paid off their mortgage and a buyer pays them a certain amount in intervals until the home is paid in full.
3. Assumption
A buyer can assume (i.e., take over) the seller's mortgage. In this case, the home loan transfers to their name, taking financial responsibility for the remainder of the mortgage. The lender may only permit the buyer to assume the mortgage under specific guidelines.
4. No financing
The buyer doesn’t need a loan but pays for the residential property fully using their funds.