‘Vendor Finance’ is increasingly becoming popular in Australia.  It was a practice in the countryside for decades and now practiced in cities too. The banks and other financial institutions have become very stringent in approving home mortgages due to today’s dismal economic situation. Due to this most of the people who are caught up in the renting are not able to own a house. Despite the grants offered by the government to those who want to own a home for the first time are affected as they have difficulty in meeting the huge deposit requirements or other strict eligibility criteria. People are not able to own their homes for many other reasons even though they can afford to pay monthly payments towards owning their homes.

Vendor Finance is a solution to people who are finding difficult to meet the strict eligibility criteria of banks and other financial institutions. To be eligible they just have to be first time home buyers or those who plan to use this as a temporary arrangement to repair their credit situation and obtain their mortgages from the banks.  The process is slightly more expensive than the normal home loans. The concept is an investor who is able to meet the deposit.

The vendor finance scheme is officially recognized in Australia. This is increasingly practiced in New South Wales and particularly in Sydney and surrounding suburbs. In vendor finance agreement the owner of a property provides the finance to the purchaser. The purchaser moves into their new property after signing the agreement and enjoy all the facilities as a home owner. The purchaser can legally own the property only after all he pays all the money owing to the vendor. The vendor financing companies will liaise with real estate agents, landlords and investors to help people buy homes who do not qualify for mortgages from banks and other financial institutions. In some cases the vendor deposit finance is provided towards mortgage deposit to buy a property in addition to the finance that a purchaser has already secured from a different lending institution. The vendor deposit finance must be repaid with interest within 2 to 5 years.
 
Under this scheme the purchaser pays an inflated interest rate of about 2 to 2.5 per cent higher than the standard home loan.  They may often be paying a premium purchase price to the vendor. Though this process is expensive, people that do not qualify for conventional financing elsewhere still go for it. They are often willing to foot the high initial costs and interests to own their dream home.

Some of the main categories people whom the vendor finance option is suitable are:

• Self-employed
• People with casual employment
• People with an insufficient deposit saved or an irregular savings history
• People with no or bad credit history
• People with defaults or bankruptcy on their credit reports
• New arrivals to Australia

People who are entitled to the Governments First Home Owners Grant (FHOG) and the First Home Owner Bonus can buy homes on Vendor Finance.