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How Vendor Finance Works
When you buy a home you are known as the purchaser and the seller is known as the vendor. In general, most purchasers don't have enough money to purchase the property outright and need access to a provider that can offer finance. Vendor finance is most commonly used for large scale apartment developments.
Vendors provide finance based on a pre-determined set of terms and conditions which are often stated in the contract of sale. If you use vendor finance the title to the property stays in the vendor's name until you have made all your repayments and fulfilled your obligations under the sale contract. Vendor finance is very similar to a lay-by transaction as you make repayments, except you can live in the property as you continue to make repayments unlike a lay-by where you need to live the item at the store.
Vendor financiers normally lend up to 80% of the purchase price, although some finance companies will lend up to 90 or 100% if you are willing to take out additional mortgage insurance as well.
When you purchase the house your conveyancer or lawyer will place a caveat on the title. This protects you from the vendor selling the property or further borrowing against it without your knowledge. Conversely the terms and conditions allow that if you breach your contractual obligations then the vendor financier reserve the right to immediately start legal proceedings and rescind the contract.
