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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