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Posted 04-13-2019 9:06:34 AM
Is an owner financed home for me?

Here's a common situation we encounter.  Our clients want to sell the house they are in and buy a new one.  Usually in this scenario though they have less than ideal credit.  This limits the seller on what they can do to get into a new home.  They can either wait and rebuild their credit, look for a rental, or owner finance. 

What’s owner finance?  Glad you asked.

Owner financing (may also be called seller financing), means that the seller extends credit to the buyer to cover the purchase price of the home.  The seller sets the price, stipulations on down payment and monthly payments, and the buyer pays the seller until the home is paid off.  This is normally done with a promissory note which details the terms, interest rate, and repayment schedule.  This note also will contain what happens if the buyer defaults on the purchase of the home.  In most cases, the owner keeps title to the home until the loan is paid in full. Real Estate Investing

Most owner financing deals are set up with the short term in mind.  Usually, after a couple of years, the buyer is in a better situation and should be able to qualify for a conventional mortgage.  From what we have seen over the past couple of years though, more and more deals are being set up with 30-year terms and a substantial balloon payment at the end.  Beware of the balloon payment at the end!

There are definitely pros and cons to owner financing a home.  If you are wondering if owner financing a home is right for you to check out the pros and cons below.

Down Payment

Owner finance properties are generally flexible with their down payments.  This does not mean that you can walk into a home with 0 dollars though.  On average you are looking at 10% of the sales price of the home for the down payment.  100k home 10k down payment.  You can always work with the owner to see if a lower down payment can be made.  When looking for an owner financed home in San Antonio try to save at least 8,000 before you begin your home search.

Quicker Closing

When buying an owner financed home you can expect a quick close.  There are no underwriters, appraisers, or banks to slow the process down.  In most cases, the sale is handled by a title company and an attorney.  This helps the process move a lot faster then involving banking and other parties.  This is usually a great benefit to people who are selling and need somewhere to move into ASAP.

Credit Difficulties Accepted

There are many situations that may disqualify a potential buyer from qualifying for a traditional mortgage.  While some situations credit wise may be cleared up in a couple of months, there are some situations that won’t.  Bankruptcy and self-employment are where we see this the most.  If you can qualify for a traditional mortgage DO IT!  Although the requirements are more stringent you will save your self on the interest rate and purchase of the home!

What are the downsides to owner financing?  Here are some of the biggest ones.

Interest Rate

The owner usually sets the interest rate on the property.  Depending on the seller you may have an interest rate of a credit card!  If you can get traditional financing you will generally carry a lower interest rate than going with a owner financed sale.

Lose the House

The seller can stipulate what the steps are for default on the home.  9/10 if you miss a couple of payments the seller will take back ownership of the home.  Imagine you get into a rough spot 3-4 months in and fail to pay for a couple of months.  The seller at that point can begin the process to evict and take back ownership of the home.  I have heard stories of owners reselling the same house 5-6 times because of this. Owner financed homes san Antonio

At the end of the day purchasing an owner financed property can be a good fit for some individuals.  If you are looking for a cash offer on your home or need a quick close on your home and don’t have the credit to get a new one owner financing may be right for you.  Need help selling your home or looking for owner financed properties?  Give us a ring up!

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