Having a difficult time selling your home? Or having a difficult time getting approved to buy a home? Then it is time to consider owner financing.
Owner financing has been available for a very long time although many people do not understand it. Both sellers and buyers think that in some way they will lose when opting for owner financing.
For a seller who is interested in selling their home, offering owner financing will open up a new category of potential buyers. It will increase the amount of interest being directed towards their home. Many people have the down payment in tact for their home purchase, but cannot get approved for a loan due to some circumstance. Things such as long term unemployment can potentially make someone unable to attain a mortgage. By offering owner financing, a seller may be able to find a buyer very quickly.
The benefits of owner financing are numerous. Besides making the home more attractive to a larger variety of buyers, the seller now becomes the bank or mortgagee. The mortgage is usually calculated and amortized the same way that a regular bank mortgage would be. For the seller, that means collecting the interest on the loan. Most of the interest on a mortgage is collected during the first ten years of payment. When a seller offers owner financing at a competitive interest rate with a 5 or 10 year balloon on the mortgage, that seller will be collecting a substantial amount of interest during those years with the principal amount being due at the balloon term. If the buyers still cannot refinance when the balloon note is due, the seller can do a simple modification to extend the mortgage.
-When offering owner financing, request a down payment that is reasonable buy yet fair to the owner and buyer. The seller must be comfortable with the amount of the down payment.
-Make sure to use a Title Company or Real Estate Attorney to take care of the transaction. Remember, this is a legal transaction and must be done accordingly.
-Make sure to request a copy of the paid home owner's insurance and paid real estate taxes each year that you, the seller, is holding the mortgage. Any other assessments that are vital, such as home owner association fees, must also be considered.
-Offer a reasonable interest rate to the buyer as an incentive. Use a balloon note with room for modification.
For a seller, this can be a lucrative alternative. In the event that the buyer does not pay the mortgage, the seller keeps all of the money they have collected and can foreclose on the property and resell it at its original price or higher, depending on the market.