Owner Financing: Do You Know Which End Is Up?

We live in a world where we have the luxury of having multiple options. If you want something, you can get it one way or the other.

In the same vein, buying a home might be difficult but not impossible. When you decide to buy a home, multiple doors open for you.

If you’re reluctant about taking a more conventional route to home buying, there’s almost always an alternative. Owner financing is one such option and you should take advantage of it.

Does it make sense to you? No! No worries. Here is how owner financing works during the home buying process and how you can make it work in your favor.

What is Owner Financing?

Buying a home with cash is rare but it does happen. But most buyers pursue a home loan through a bank to finance their home purchase. It is a more conventional and common strategy. Owner financing is when the owner does the financing for the home to the buyer instead of a bank.

How Does Owner Financing Work in Real Estate?

It doesn’t work the same as a conventional mortgage. With owner financing, the seller does not give the buyer money to buy the home with the condition that the buyer will pay them back in installments as is the case in a conventional mortgage.

Instead, the seller only pays the buyer enough money to cover the closing costs. Once the deal is done, the buyer is supposed to pay the seller the total cost of the house in installments.

The seller and a buyer sign an agreement indicating both parties agreed to all of the agreement clauses. The agreement also contains information such as the interest rate, payment schedule, contingencies, and consequences should the loan go into default.

In some cases, the owner does not transfer the title until the whole payment is settled.

Owner financing is only for the short term. The idea behind owner financing is to provide the buyer with financial relief until the buyer qualifies or gets approved for a home loan.

Advantages of Owner Financing:

• Owner financing is beneficial to both sellers and buyers, especially in a highly competitive real estate market where getting a mortgage is quite tough. The chief advantage is, of course, the luxury of having alternative financing available for buyers. This option allows sellers the luxury of a quick home sale.
• If you’ve ever been involved in a real estate transaction, you probably know about the hefty closing costs that are involved. However, when you buy through owner financing, closing costs are reduced. You no longer have to pay origination fees, the cost of a mortgage, and certain other charges that the mortgagor charges during the process. Additionally, conditions tend to be more flexible in owner financing arrangements.
• Owner financing doesn’t involve extensive loan approval, so closing happens faster.
• The deal is equally good for sellers. With owner financing, sellers do not have to spend money on maintenance issues related to getting the house ready for sale; they can sell the property in whatever condition the home is.
• The seller may also maximize their investment because of the interest rate. They can retain the title until they receive the full amount from the buyer, which allows them to maintain authority over the property.

The Flipside of Owner Financing:

Having said all that, there is a negative side to owner financing. There are things that may not be on the buyer’s side such as higher interest rates. In these settlements, sellers usually set a higher interest rate than a conventional loan.

Owner financing is subject to the approval of the seller, and not every seller is likely to agree with your idea of what the owner’s interest rate is.

Balloon payments are another headache in owners’ financing. After a certain period, say 5 or 10 years, the buyer must pay a large amount, which pushes the buyer to get a conventional mortgage.

How to Find Owner Financing Homes for Sale:

Some of the best ways to find owner financing homes for sale are:

• Real Estate Websites:

The real estate sector has gone digital. There are dozens of websites dedicated to real estate where you can shop for homes. You may see the latest listings available in town. The best feature of these websites is the availability of filters that you can use to narrow down your search.

Type “owner financing homes for sale” in the search bar or choose “owner financing homes” from a list.

• Real Estate Agents:

If you are unable to find owner financing homes for sale on real estate websites, consider hiring a real estate agent.

An agent will help you find not only properties that offer owner financing but also properties that best fit your requirements. Get in touch with an agent and get yourself an owner financed home.

• Buy ‘for Sale by Owner’:

Another option is to buy homes that are for sale by the owner (FSBO). Ask the seller if they would be interested in owner financing.

Chances are you will be able to find owner financed homes for sale if you try the above-mentioned channels.

Conclusion:

Although we do not see it happening much, there are still owner financing options available. It can be a win-win for both buyer and seller despite the risk involved. You’ll want to make the decision on what option works best for your unique set of circumstances.

It will also be helpful and safer to solicit the expertise of a real estate attorney when you enter into any such deal.

Read Also:

Basics Of Writing A Perfect Owner Financing Contract