How To Narrow Down An Owner Financing Home Purchase Solution
How to buy a home with owner financing will vary depending on both the buyer's and the seller's unique situations. Various approaches can be made depending on two key buyer attributes, and one key seller attribute.
Buyers of owner financed homes for sale need to consider their credit worthiness and ability to fund a down payment. While banks typically require near perfect credit scores along with upwards of 20% down payment readily available just to qualify for a mortgage, Owner Financed home sellers can be much, much more flexible. Owner financed homes can be bought by people with either high or low credit scores, ample down payment funds or no to low down payments. Terms of the financing will vary depending on these factors, but overall, owner financed homes offer flexibility for buyers.
The key seller attribute to consider with owner financing is the current state of the home's mortgage. If the home is owned free and clear by the seller, and the seller is interested in generating a cash flow from the property, the owner financed sale terms can be highly customized for the buyer. Sellers who still have an outstanding mortgage on the home may have some restrictions to meet. However, these can be overcome with creative financing options.
Two popular ways to secure owner financing include wrap-around and land installment financing.
Wrap-Around Owner Financing
This type of owner-financing is often used where the seller has a current mortgage on the home, and the buyer has sufficient income, but is unable to obtain financing from a bank. The buyer makes a down payment to the seller and signs a promissory note for the remainder of the purchase price, plus interest. The buyer then makes monthly payments to the seller, who uses the money to pay the existing mortgage.
Land Installment Owner Finance Contract
This type of agreement is often used when there is not an existing mortgage obligation for the seller to meet, and the buyer is capable of making only a small down payment and smaller monthly payments. The seller agrees to transfer the title to the home and the property it sits on only after the buyer has met certain conditions specified in the contract, typically the payment of the agreed upon purchase price, plus interest, with payments made in monthly installments over a set period of time.
What option is right for you?
All are equally viable options and depend on your personal situation. There are varying risks and benefits to each and you want to be sure you completely understand all terms before making an agreement.
What types of homes are available?
The variety is remarkable! Whether you're looking for a starter home, moving up to grow a family, or ready to downsize or retire to the low-maintenance home of your dreams, the best homes are being snapped up by savvy buyers nationwide.
Inventory changes constantly, so don't get discouraged if the perfect place is not available right away. Keep an eye on owner financed listings for at least 6 weeks or so. Why pay an agent or bank high fees to get you into a traditional mortgage? With a little self-effort and a couple month's time, you can do it yourself with Owner Financing.
You know what they say, you can't win if you don't play. And you can't find it if you don't take all the time needed for a real search!