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.
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.
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.
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
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!