If you are on the house hunt, you may have come across a home for sale listed as ‘Owner Financed’. Here’s a quick guide to see if it is a good fit for you as a buyer or seller!
1. What is Owner Financing?
When the buyer finances the purchase of the house (minus the down payment) through the seller. Basically, the seller gives the buyer the loan on the home, instead of a conventional lender, such as a bank.
2. How is the loan paid?
The buyer and seller agree on the loan terms: interest rate, monthly payment amount, length of loan (usually short, 3-10 years), and consequences of default. Often, there is a balloon payment – an oversized payment due at the end of the mortgage.
3. How much is the down payment?
Amounts will vary (up to 30% or more), but most owner financing sellers will want a significant amount down to protect their equity. If a buyer is willing to put a hefty amount down up front, it gives the seller more confidence that the buyer is unlikely to go into foreclosure.
4. What are the different types of Owner Financing?
Promissory notes and mortgage: all-inclusive mortgage, junior mortgage;
Lease purchase agreements
5. Why is Owner Financing good for a buyer?
A buyer does not need to go through the difficult qualification process of a conventional lender; although most sellers will at least do a credit check. The flexibility of designing your own payment plan that fits your needs is very appealing to most buyers. Little to no closing costs is one of the biggest perks, as there are none of the fees that go along with a lending institution. In addition, change of possession of the home usually occurs faster since the seller and buyer can schedule their own closing date.
6. Why is Owner Financing good for a seller?
A seller receives a nice monthly income by serving as the lender. Sellers have the opportunity to make money on a current investment as the interest rate is usually higher for owner financing than traditional financing. A seller can ask for a higher interest rate than a traditional lender depending on the market and the popularity of the home (i.e. if traditional interest rates are 4%, a seller could ask for 6-10%). Since owner financing is rare, these homes tend to sell pretty fast because they stand out. The seller can often get full asking price when selling with owner financing. A seller will receive a tax break compared to a traditional home sale because you only have to report the income received per year. It is also a great opportunity to get a buyer in your property faster as the buyer can take advantage of the flexibility of owner financing while they work with a lender to determine what they need to do to obtain traditional financing before the balloon payment is due.
If you are looking to buy or sell an Owner Financed property, expert realtor Angelina Cook with DFW Realty by Design is at your service! Contact her today to take advantage of this unique way to buy or sell your home.
Contact: Angelina Cook
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