With the recent downturn in the economy, it has become a need for home sellers to find alternative ways to sell there home. Owner financing, also known as seller financing or owner-will-carry is the newest trend in selling homes. The basics of owner financing are simple at the core, the seller essentially acts as a bank for the buyer for a given amount of time.
The bonuses are two fold; one the seller opens up the property to a large number of buyers that cannot get conventional financing, typically these are buyers that have credit challenges such as a previous foreclosure or they are paid through self employment. Due to the recent changes in lending guidelines, someone who would easily qualify for a home 3 years ago can no longer qualify even if they have perfect credit.
There is a well know article on the internet stating that these types of transactions are rare, and incredibly hard to come by. This article is of course from 2002. These types of transactions are very common as of 2010. In the past, most home owners who would be willing to sell a home on through owner financing would ask for almost 50% or more of the homes value as a down payment. This was to compensate for the fact that they expected the home owners to make payments over a 30 year term. This is just ridiculous by the standards of today.
Almost 90% of all owner financing transactions occur now because of investment decisions made in the past by house flippers or people expecting the value on their primary home to increase. This has caused a large amount of homes to come onto the market that are nearly paid off, but are no longer wanted due to taxes on the property or an inability to find a renter. Although money may still be owed on the property, the down payment will more than payoff the underlying mortgage.
So what are the terms? This is a question that I get asked on a daily basis from buyers looking to purchase owner finance homes. Of course each home seller is different, but the typical terms are 10% down payment, a 5 year contract with a full payoff expected at the end of the contract and monthly payments on the home amortized over 30 years. Standard practice is to have all payments made through a third party escrow service. The escrow service ensures that all payments are made on the buyers behalf.
It’s a shame that there is so much false information about owner financing on the internet. Most of this information is out dated and paints a very bleak picture about the rarity of owner financed homes. The truth is the modern real estate market has changed and most working realtors like myself that have changed with the market are doing just fine. Almost all currently working real estate agents have worked with an owner financed transaction. They are an excellent alternative to buy and sell a home without the need for bank approval.