Owner Financed homes are like most things as they have both good and bad things associated with them. Some of the benefits of an owner finance home is you do not have to meet the banks strict criteria for a mortgage loan. Owners (or investors) will typically have their own criteria in determining who qualifies but they are often much more relaxed than the bank’s criteria. In exchange for the relaxed criteria in becoming a homeowner the interest rates are typically higher than traditional mortgage lending and they also require a larger down payment than normal. Down payments on Owner-Finance homes can range anywhere from $5,000 to 20% of the property value.
While owner (or seller) financing of your home purchases could be a good deal for homebuyers, they are a rarity and hard to find for several reasons. For one, in a lot of cases the seller has to pay off their existing mortgage before they can sell. As a result of this most owner financed homes and transactions are not actually done by the individual sellers or owners: they are done by real estate investors. It’s common in the current real estate environment that most sellers can’t owner-finance to you even if they wanted to, because they don’t have the means to pay off their existing mortgage.
Also, it’s very common for sellers to want their cash up front, and with a regular sale, that’s what they get. Another reason the seller might not want to owner-finance is that they don’t want to (or can’t) wait another 30 years to collect all the payments. That said, there are exceptional cases where owner-financing is possible.
Owner Finance homes can be a very good option for some people but it’s important to make sure you know who you’re dealing with and what you’re getting into. Make sure you read all the fine print and know what your payments are going to be from the 1st month to the last month of the loan. The ideal client that might need an owner finance deal are people that are self-employed but do not verify enough income to qualify the conventional way. They also work well for people with credit challenged, foreign nationals, and anyone else who doesn’t meet the bank’s strict lending requirements.
Since a realtor may not be used in deals like this, make sure all the papers for the sale are handled by and signed at either an attorney’s office or at a title company, which makes sure (among other things) that the home is really the seller’s to sell, and that there aren’t any outstanding claims against the property.