What is owner financing?
Instead of going to the bank, the buyer and seller agree upon a down payment amount, and an interest rate, monthly payment amount and term of the loan for the rest of the amount, and the buyer pays the seller for the seller’s equity on an installment basis.
The security instrument is generally recorded in the public records, which protects both parties.
Types of Owner Financing
Most purchase-money transactions are negotiable. Sellers and buyers are free to negotiate the terms of the owner financing, subject to usury laws and other state-specific regulations.
While there is no standard down payment required, many sellers want a sufficient down payment to protect their equity. Down payments can vary: usually from 50% or more. Sellers feel their equity is safeguarded by the buyer’s down payment because buyers are less likely to go into foreclosure if they’ve invested a lot of money upfront.
Owner Financing Benefits to Home Buyers
- Little or No Qualifying. Even if the seller demands a credit report on the buyer, the seller’s interpretation of buyer qualifications are typically less stringent and more flexible than those imposed by conventional lenders.
- Tailored Financing. Unlike conventional loans, sellers and buyers can choose from a variety of payment options such as interest only, fixed-rate amortization, less-than-interest or a balloon payment. Payments can mix and match. Interest rates can adjust periodically or remain at one rate for the term of the loan.
- Down Payment Flexibility. Down payments are negotiable. If a seller wants a larger down payment than the buyer possesses, sometimes sellers will let a buyer make periodic lump-sum payments toward a down payment.
- Lower Closing Costs. Without an institutional lender, there are no loan or discount points to pay. No origination fees, processing fees, administration fees or any of the other assorted miscellaneous fees that lenders routinely charge, which automatically saves money on buyer closing costs.
- Faster Possession. Because buyers and sellers aren’t waiting on a lender to process the financing, buyers can close faster and get buyer possession earlier over a conventional loan transaction.
Owner Financing Benefits to Home Sellers
- Higher Sales Price. Because the seller is offering owner financing, the seller may be in a position to command full list price or higher.
- Tax Breaks. The seller might pay less in taxes on an installment sale, reporting only the income received in each calendar year.
- Monthly Income. Payments from a buyer increase the seller’s monthly cash flow, resulting in spendable income.
- Higher Interest Rate. Owner financing can carry a higher rate of interest than a seller might receive in a money market account or other low-risk types of investments.
- Shorter Listing Term. Owner financing attracts a different set of buyers. If a property is not selling under conventional methods, offering owner financing is one way to stand out from the sea of inventory and move a hard-to-sell property that otherwise might not sell.
More and more owners are willing to provide owner financing.
Please contact us if your dream house or condo is available for this opportunity.