These days, with the overabundance of existing homes already on the market for more than 90 days, conventional methods are simply not working like they used to. Add into the mix the ridiculous numbers of foreclosed homes and you wind up with a stagnant housing market. Even with sterling credit, you will jump through hoops trying to get financing to purchase a home and still wind up unapproved. The solution many are turning to is purchasing owner financing homes. This is one area that could use a change, as the average fair market value for a home today is over one million, but even with being listed at half that value, are still not selling.
You have to look for those that are listed as home for sale owner financing, or for sale by owner, in the local newspapers and websites. This is the best way to find owner financing homes. If you talk to a real estate agent, they may not know of any, and just approaching a seller to ask if they can finance the sale for you will probably not work out. That said, before you start your search, it may be a good idea to learn how it works, and the benefits that comes with owner financing.
What is Owner Financing?
Whenever a home for sale carries that added term “owner financing”, it means that the purchase price, minus the down payment, will be part of a financial contract that exists solely between the seller and the buyer. The buyer negotiates with the seller a purchase contract that is binding, and allows for a payment plan over time that is put towards the final purchase of the home.
Just like bank loans, the seller and buyer agree to an acceptable interest rate, monthly payment amount, and term of loan. In most cases, these are also called rent to own, with option to buy deals, where a portion of the monthly rent is put towards either the purchase price or the down payment, depending upon the buyer and seller’s financial position. A security instrument will be created, listing all details of the sale agreement, and will be filed with the court as would any other real estate transaction, for the protection of both parties.
Types of Owner Financing
In the case of owner financing homes, the seller will often carry the mortgage for the entire purchase price, less the down payment. This is known as an all-inclusive mortgage. When a buyer cannot get a mortgage loan on their own, this is often the best way for them to purchase a home, and the resulting loan is often in the seller’s name, rather than the buyer’s. All payments are made to the seller, who then uses them to repay the loan.
Lease purchase agreements are another way to handle this kind of real estate sale. This means that the seller is giving the buyer an equitable title, and is leasing the property to the buyer. The negotiated lease payments or a portion of each payment is put towards the purchase price, less interest, until the balance is paid, and the buyer receives full and clear title to the property.
Benefits of Owner Financing
For the buyer, there are obvious benefits to this kind of purchase agreement, especially if their credit rating is not the best. The loan can also be tailored through negotiating with the seller to an affordable and reasonable monthly payment, down payment and interest rate that you know you can afford. You also get possession of the property faster, and you probably will not have to pay any extra fees or closing costs.
For the seller, the owner financing homes program means that you will be able to command the full market price for your home, and you will not have to pay the full taxes on the sale that year. With an installment plan in place, you only have to pay taxes on the income from that sale collected that year, not the full amount all at once. You can offer the buyer a lower interest rate than any lender, making the sale even more attractive and it will most likely spend less time on the market than it would through an agency.