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 grew up in a small town in Wyoming and married my high school sweetheart. I purchased my first home when I was 18 and immediately found a passion for real estate. One year later, I passed the Wyoming Real Estate Exam, and successfully purchased my second property! I love to help people navigate the real estate process and connect with my customers to help them achieve their real estate goals! With more than 25 years of experience in the industry – including residential, commercial, timeshare sales, and property management: I thrive on new opportunities to assist Buyers and Sellers. When not listing a property or negotiating an offer, you may find me on the beach enjoying some "Salt Life", volunteering at my child's school, and helping out in the community. Finally, I am proud to sit on the board of directors of a dedicated 501c3 foundation & help veterans, active service members, & first responders find relief from PTSD through scuba diving.
