Among the many options for home financing available to buyers, financing by owner homes often offer the most flexibility. By working with an individual seller rather than a mortgage lending institution, you have the opportunity to skip considerable amounts of red tape and extra fees.
But what exactly is owner financing? Here are some of the basics buyers should know:
Owner financing, also called seller financing, is when the owner of a property for sale provides partial or complete financing to the buyer directly. The agreement is similar in concept to a mortgage loan, only that the property owner owns the debts. Owner loans typically do not appear on buyers' credit reports for a particular transaction.
Owner financing agreements work similarly to conventional mortgage loans. However, the seller provides credit to the buyer to cover the purchase. The buyer pays the owner back directly rather than a third-party lender. In most cases, the owner holds on to the title until the home has been completely paid off.
As with all real property contracts, owners' financing arrangements need to be detailed in writing so both the buyer and the seller know the responsibilities of the contracts. Owner financing agreements require signing a promissory note including details on the interest rate, repayment schedule and the consequences of default.
For buyers, there are multiple advantages to an owner financing agreement. This type of financing is much quicker than working with a mortgage lender, and doesn't come with any bank fees or appraisal costs. It can be a great option for buyers who have trouble getting financing for other reasons like bad credit.
However, one major disadvantage of this type of agreement is a higher interest rate. Also, some agreements require a large balloon payment due after a certain number of years.
Is owner financing the right way for you to buy a home? Keep these key facts in mind when weighing your options for financing your dream home.
I'm a veteran real estate agent with over 24 years of experience. Started my career in 1999, working for Century 21 American Dream in Hamden CT; assisting buyers and sellers, providing first time home buyer presentations for banks and non-profit organizations. By surpassing my sales goals, I received awards from the Regional Division of Century 21, for Outstanding Customer Service and the Multi-Million Dollar Award.
In 2005, I started McNeil Realty in New Haven CT, and later moved to Hamden CT; servicing New Haven, Middlesex, and Fairfield counties; providing home-buyers and sellers with professional, responsive and attentive real estate services. I'm a HUD Certified Broker, assisting buyers with foreclosed properties.
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