Things to Know About Owner Financing

Owner financing is one of the first things that comes to mind when buyers find a great piece of land on the market that they wish to purchase. Depending on the property, it can be hard to find traditional financing on a piece of land. With owner financing, buyers skip using a bank and a traditional mortgage. Instead, the seller finances the person who wants to purchase the property, usually holding the note until the property is paid off in full. The interest rates are generally a bit higher than current mortgage rates, but it’s sometimes the only option for a buyer to get financing.

Here is what you should know about owner financing:

Faster Way to Close the Deal

If sellers have a buyer they can trust, owner financing can be a faster option to close the deal. This way buyers won’t have to bother with all the mortgage paperwork that prolongs the buying process and will be able to own the property in a shorter amount of time. Additionally, the seller is not obligated to spent money to make the property look more presentable since the owner generally finances the property as-is. The important thing about this type of financing is the time efficiency.

Good Financing Alternative

Buyers who don’t want to commit to a fixed-rate bank loan and go through the entire mortgage approval process to secure the property may choose owner financing. Owners generally require a zero to low down payment, while banks generally want to see anywhere from 15% – 50% down depending on the proposed use of the property. This all goes in favor of the seller as well, as he can get the money from the down payment and the monthly payments yet still holds an interest in the property in case the buyer defaults.

Run a Credit Check

First thing a seller needs to do before financing a potential buyer is to check their credit background to be sure they can cover the costs. Have them fill out an application of their employment history as well as references, just as a traditional lender would do. Once you are convinced the potential buyer has a clean history, you are good to close the deal. A good credit report from a reputable bureau shows that the potential buyer is less likely to default on the property.

Order a Title Search

The buyer will generally have to pay for this but it’s usually money well spent to make sure that there aren’t any mortgage or tax liens and that the seller is accurately describing what is stated on the deed.

Ask for Assistance to Get the Deal Done

Last but not least, hire a real estate agent who knows the ins and outs of owner financing a property and understands the land market. An experienced agent will help you make the best decision without making mistakes. It’s true that owner financing can be a good option but only if you do your due diligence and follow a professional’s advice.

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by Laura Mueller

It can be tough out there for a land buyer, especially when inventory is low.

The real estate industry has been stuck in a stark seller’s market for months on end, and that applies to land as well. This past year saw many people ditching big cities and investing in rural land, a trend that was further intensified by the growing popularity of remote work. And with inventory down but plenty of buyers looking to make a purchase, that can mean a lot more competition than normal for buyers—plus a lot more urgency when you do find something that you like.

If you’re looking to buy and you’re feeling discouraged by the lack of properties for sale, you’re not alone, nor are you totally out of luck. Here are some quick tips for buying land in a seller’s market, with key takeaways that can help you manage the market without losing your mind.

1. Hire a great agent

To really compete in a low-inventory market, you need the right agent. This includes making sure that you’re not only working with an agent who has their fingers on the pulse of your local market and the ability to act fast on your behalf, but who you also communicate well with and can trust to be constantly on the lookout for properties that meet your needs.

If you’ve been on the hunt for a while, it could mean that it’s time for a change. Check in with your agent and ask them how it’s going from their perspective. You may want to consider switching to someone else if it means having an agent by your side who can really go to bat for you.

2. Get in on the search

Having the right agent is essential, but as the buyer you still have an important role to play too. Because inventory is so scarce, you want to have feelers out in as many direction as possible, which includes not just the traditional search channels that your agent is using but also within your own network. Do plenty of your own searching in addition to relying on your agent, and get involved in local social media groups so you can be the first to know when new properties become available.

3. Work out your financing in advance

With fierce competition comes the need to move as quickly as possible when you do find a property that you like. That leaves less time for working out the kinks in your financing. Ensure that you know exactly what you have to spend—including how much cash you have on hand and how you intend to finance the remainder—so that you have all of the information you need to put forward attractive and sound offers.

4. Make it personal

In real estate, buyers and sellers often get reduced to their on-paper presence, which takes the emotion out of the deal. Sometimes a personal connection can work in your favor though, especially when you’re trying to stand out from the pack. Consider writing a note along with your offer that speaks to what drew you to the property and why you love it so much. If it’s a private seller, that may be enough to sway them to your side.

All hope isn’t lost. Your perfect piece of land is out there, so get to work and make sure you snag it.

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