In today’s heated economic climate, we’re exposed to several questionable influences and trends that might hurt us in the long run. What works for some business people and investors might not apply to your case. You must investigate brand-new concepts from as many angles as possible. Still, fear not! We at RealEstateAgent.com are here to examine relatively vague ideas, such as owner financing, today’s buzzword.
Suppose you’re intrigued by revolutionary investment opportunities against all odds. Or simply, you would like to purchase a home or sell a property as effortlessly as possible.
And, you bump into the notion of owner financing in real estate, promising you the world on a silver plate without knowing how owner financing works.
The very definition of owner financing is already filled with perks.
Despite heavily-debated restrictions, owner or seller financing is still a popular way to buy and sell a home in 2022. The property owner (or seller) and the buyer (or borrower) opt to work without the bank as an intermediary. 
In reality, it plays out the following way. The seller purposefully decides to undertake the bank’s role and finances the sale. Yet, it doesn’t mean that the owner pays the borrower the missing amount. Instead, the seller grants the buyer enough credit to finance the property’s purchase.
The buyer has plenty of reasons to choose owner financing. Firstly, they might not qualify for a traditional mortgage due to having a bad credit history. Secondly, they consider a long-lasting mortgage payment a way too demanding financial burden. Also, the closing day comes considerably sooner if the parties decide to go with seller financing.
The buyer’s market and the parties being acquainted help facilitate the deal.
On a side note, the fact that there are more homes for sale than buyers on the market facilitates seller financing. Besides, it helps if the parties know each other or are on friendly terms. Because this type of financing requires greater trust among the parties as a great deal of money is at stake.
What ‘minor’ setbacks to owner financing must you anticipate?
However, the owner’s good intentions come at a price. We’re talking about some of the more aching disadvantages of owner financing, such as a more significant down payment than conventional mortgage loans. Secondly, buyers must expect substantially higher interest rates.
And lastly, borrowers have to be ‘endowed with vital financial resources.’ And what’s the reasoning for this? They must prepare for the so-called balloon payment in six years. In fact, the balloon payment is the final payment, the remaining (lump) sum from their debt. Only at this point will they receive the property deeds.
Alternatives for paying the lump sum are re-financing the project or obtaining a traditional bank loan. Now that we might have slightly curbed your enthusiasm, we can genuinely present the perks of owner financing.
What are the quintessential benefits of owner financing?
First, let’s examine owner financing’s mutual advantages over conventional government-backed loans. Right off the bat, imagine you won’t have to deal with piles of official paperwork. Without the bank as a mediator, the entire process is simplified.
You can save time and energy as well as cut some hefty costs. The parties won’t have to wait for the lengthy loan preapproval to conclude because no thorough credit history check is necessary.
In addition, you can skip the home appraisal and property inspection expenses and save precious time. Moreover, you won’t have to pay the standard fees of bank clerks, underwriters, or other bank employers.
Homebuyers, here is why owner financing can be a life savior!
Suppose you don’t qualify for a suitable mortgage on excellent (or at least acceptable) terms. In that case, you can always find your dream home among the owner-financed properties listed in your area. So, you can get instant access to properties otherwise you may not qualify for.
More flexible negotiating partnership
Dealing directly with the owner will result in more flexibility than discussing loan terms with the bank. You can negotiate contract terms and conditions, such as down payment, costs, monthly interest, property fees, and the lump sum called a balloon payment. If either party feels uncomfortable with one of these terms, they can re-negotiate or walk away.
No bank, no cry
As we mentioned, you can do away with bank fees, appraisal costs, or, if you choose, even the inspection expense. You can also put the usual closing worries behind you. Remember, the deal is up to you and the seller! You can move into your new house as early as ‘the ink has dried on your contract.’
Real estate investors also choose owner financing.
Suppose you call yourself an aspiring real estate investor. In that case, you gain traction by adding more than one property to your portfolio. You can choose to sell these estates with owner financing and ensure a reliable source of monthly revenue.
Still, remember the Dodd-Frank Wall Street Reform and Consumer Protection Act is in effect! It regulates the real estate market and irresponsible investments. For this reason, we advise you to explore the legislation in detail!
Owner financing can be a sure tip for home sellers!
To a certain extent, sellers will also enjoy the same perks as buyers.
- Firstly, owners can invite a larger group of potential buyers who aren’t qualified for a traditional mortgage. In other words, they can sell faster.
- Secondly, the proprietors can sell their property as is since no official and exclusionary home inspections or appraisals play a role here. Thus, sellers don’t need to break the bank to revamp their (possibly) rundown homes.
- Sellers enjoy the upper hand in setting the monthly interest. If you consider this essential edge, owner financing will grant you more substantial income than most old-school investments.
- What happens if the borrower defaults? Then, the seller has the right to retain the property title plus the sum the buyer has already paid as monthly payments.
- Among the many owner-financing advantages, we must highlight the most important one. Suppose another investor shows up ready to pay up-front for the owner-financed property. In that case, sellers can sell the proof of the buyer’s payment liability (in short, a promissory note.)
Conclusion
At first sight, the perks of owner financing seem to outweigh its disadvantages. Nonetheless, we must inform you that seller-financed deals and contracts differ in every instance depending on the two parties.
The undeniable advantages are lower closing costs and an indefinitely shorter period to finalize the deal. Besides, the bank doesn’t get involved. The parties enjoy flexibility and can negotiate better terms.
On the downside, buyers will (most probably) have to pay higher interest and will have less time to repay the loan. On the other hand, sellers may face buyer default if the borrower stops making payments. In extreme cases, this could end up in an unnerving foreclosure process.
For this reason, we wholeheartedly recommend you turn to your expert real estate attorney before signing an agreement!
