Owner Financing refers to
to the process of making an agreement with the owner to pay the property in installments, usually of principal plus interest, until such time that you (as the buyer) have fully paid the purchase price.
In such an arrangement, the seller would receive installment payments directly from the property buyer instead of requiring the buyer to apply for a loan from a bank or lender.
In general, Owner Financing is an applicable tool that offers real estate buyers with more convenient qualification and practical repayment terms compared to a conventional mortgage.
At the same time, it provides an opportunity for the sellers to generate a monthly income for a specific period of time. Also referred to as Seller Financing, the buyer usually signs a promissory note to the seller wherein the terms of the loan, interest rate, and repayment schedule and other consequences are indicated.
In some instances, the title is kept by the owner until such time that the property has been fully paid off.
It is highly recommended for both the buyer and the seller to consult a real estate attorney to address all questions concerning the transaction and to facilitate the sales process appropriately.
Advantages of Owner Financing
The deal can be closed immediately
Since the arrangement is only between the seller and the buyer, there are not much waiting time and paper works involved. There is also no need to wait for loan approval.
The process is basically straightforward and the agreement terms are internal or just based on what the seller and buyer had agreed on.
More affordable closing
One major advantage of Owner Financing is that the buyer can save money on bank fees, cost of the appraisal and other documentation. The process is also fairly simple because once an arrangement has been made, the seller can prepare and discuss all the terms involved in the transaction outright and may further ask for specific requirements as part of the deal.
Allows flexibility in the amount of down payment
The seller specifies the amount of down payment and repayment schedule that he/she requires from the buyer and can further make certain adjustments that are amenable to each other. Both the seller and the buyer can negotiate on these aspects.
Unlike with traditional loans from the bank, Owner Financing does not have pre-defined minimum payments which add up to its flexibility in terms of payment.
Good alternative to buyers who are unable to secure a mortgage
Owner Financing is the ideal option for real estate buyers who are not able to secure a mortgage due to various reasons such as lack of time to secure all paper works and immediate need to acquire a property, insufficient requirements and loan denial from banks.
Where to find Owner Financing properties?
There are several ways to look for properties that offer Owner Financing. The traditional way is to inquire from a real estate agent or broker if Owner Financing is a possibility for a certain listing. Another is by checking out Multiple Listing Service (MLS) sites to identify some properties that offer this option.
You may also check various real estate listings for homes which are for lease and inquire if they offer options for interested parties to buy the property. Sellers who want to move their property fast may agree on Owner Financing.
You may also inquire directly from homeowners who put a “For Sale” sign on their property. Other areas you can explore are local classified ads, newspaper ads, various online sites and circulars that feature real estate deals.