Owner Financing – Buy A Home With Help From The Seller
The following article was submitted to us for publication and the reason I am sharing it with your is that it has a very common MISCONCEPTION about owner financing. In the overwhelming majority of cases there are strategies for a motivated seller to structure the deal even without paying off their existing underlying debt. Links in the article are exclusive resources for our Real Estate Investor Bronze Members. Here’s the article:
In the current economic climate, purchasing your own home can be difficult. Many buyers would like to take advantage of the low listing prices for properties, but are unable to get financing for the purchase in a standard homeowners loan from a bank. Another option for home buyers is Owner Financing.
Owner financing, or seller financing, means that all or part of a purchase is financed by the seller. Instead of paying a mortgage company or other lender, the buyer pays the original owner. The owner is the one who finances the purchase of the home. The main problem with Owner Financing is that most sellers are not interested in pursuing this option.
A seller must pay off their original mortgage before they can sell their home. Here is an exanple: A seller lists their house for $275,000, and has $200,000 left to pay on their original mortage. If you are financing the purchase price with a bank loan, the seller uses $200,000 to pay the balance of their mortgage, and walks away with $75,000. If the seller wanted to use the option of Owner Financing, they would have to pay off the $200,000 on their own. Most sellers simply do not have this amount of money readily available. Even if the seller is able to pay any remaining mortgage balance, they would then have to wait for your monthly payments over 20 or 30 years to see any return on the property.
Owner financing can be a great option for sellers who are interested in carrying investment properties, and have both the cash and time to do so. The return on a standard owner financed home is guaranteed at whatever the interest rate of the loan is. Sellers can usually charge a higher interest rate than a bank could, because buyers purchasing their home in this way may not qualify for a bank loan. Owner Financing is an attractive deal to buyers who would otherwise not be able to afford a home, even if they end up paying more in interest over time.
It can be difficult to find owners willing to finance the purchase of their home, and even if you can, you may end up paying thousands of dollars more. If you are interested in pursuing an owner financed home purchase, you should think carefully about the possible repercussions in the long term. Once the financial impact has been reviewed and thoughtfully considered, it is entirely possible that Owner Financing is still your best option.
Many real estate investors know how to buy houses with Owner Financing. If you are interested in learning about buying, selling or renting properties using these creative strategies then check out these free resources for Real Estate Investing.
Until my next post,
James
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