what is owner financing?
Owner financing is a financial agreement between a home seller and home buyer where a traditional bank subsided loan won’t work. Owner financing works similarly to a regular bank loan, but the seller finances the home, and the buyer pays the seller back over a period of time.
The process will begin with a large down payment towards the purchase of the house and a monthly payment plus interest. Owner financing is usually more expensive than traditional financing from a lending institution with rates between 8-10% depending on credit score.
However, it can be a viable option for home buyers who find it difficult to qualify for financing through a traditional lender.
Owner Financing Overview
Agreement on Financing Terms:
Owner financing begins when the buyer and seller agree on the financing terms in a promissory note. This includes the owner financing terms such as interest rates, amortization schedule and the deadline for the loan to be paid off.
The Buyer Pays a Down Payment:
The buyer places a down payment on the real estate to secure the purchase after both parties agree to financing terms. This upfront payment is typically a higher percentage of the purchase price than with a traditional mortgage lender. This is because the owner will want as much security as possible for the financial risk of financing the mortgage.
Monthly Payments on the Loan:
The buyer will make monthly payments to draw down the balance of loan. The buyer is able to make additional payments towards principal balance anytime during the loan.
The Buyer Pays Off the Loan:
At the end of the established loan period the mortgage should be paid in full to the seller. If the buyer is unable to pay by the final payment date, they may then seek further financing to pay off the seller, taking on a new loan to pay off the balance of the home’s price plus interest.
If you want to learn more, or see if owner financing is the right option for you, click the link below!
