Could someone please tell me a little about how owner financing a home works?
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June 22nd, 2010 at 4:01 am
If unfamiliar with this concept, seller financing involves the person selling a property acting as the bank. Thus, instead of applying for a bank loan, and making a mortgage to the bank, person’s buying a home with this option will make monthly payments directly to the owner. However, before seller financing can occur, the home or property must be free of liens.
June 25th, 2010 at 4:24 am
If you own the house, have another place to live, or can afford to make payments on the house in question and another place to live while you repossess the house in question then it may be a good idea.
Talk to a real estate attorney.
June 26th, 2010 at 12:43 pm
I think that owner financing is a good idea if the potential buyer has established his or hers credit. Instead of the bank making 8% for 30 years you will. A $100,000 home usually ends up costing 2.5 times that after all the interest payments. I would get a Real Estate Attorney to draw up the contract for you this first time. I would raise the payments as much as possible, without going to crazy of course. I mean you are doing this guy a favor, and you are in it for the money. Positive Cash Flow is the key to successes in this market.
June 26th, 2010 at 10:20 pm
Your decision to finance the buyer should also depend on how willing you are to take long term risk against the buyer’s creditworthiness. As the financer, you will be making a credit decision on the buyer’s ability to repay over time. In my opinion, banks are much better equipped to withstand default and late payments. Are you comfortable with that?
Lawyers will need to draw up a credit agreement and you will still need to run credit checks and property checks, buyer will still need mortgage insurance, etc.
June 28th, 2010 at 11:28 am
It’s called a Contract For Deed or a Land Contract. Basically it means you are the Bank. The Bank of You determines the loan program. Here are some details:
- The Bank of You determines the parameters of the loan
- Typically a Balloon Loan with a term of 3-10 years
- Interest rate will be higher than current 30-yr rate of 6.5%
- If default occurs, the Bank of You keeps all $$$ paid thus far
- Buyer responsible for all insurance, property taxes, and utilities
A Contract For Deed is heavily weighted upon the owner (Seller) for obvious reasons. The Seller has all the risk. I would have a realtor or attorney (cringe, attorneys stink), look at it after it is drawn up but prior to signing.