Owner-Financing Home Mortgages – Risks and Benefits

Since the housing market is at an all-time low, many homeowners are considering the option of financing their home to a buyer themselves, rather than waiting for the rare buyer who can still get a good loan in this economy.

Benefits

The benefits to owner-financing home mortgages are plenty. In our economy, homes are sitting on the market for up to a year. If you are willing to finance your home yourself for a buyer who cannot get a conventional loan, or to someone in your close circle of friends and family who you can trust, you could really help out a family that needs somewhere to live but can’t, or doesn’t want, to take out a bank loan.

Money is perhaps the biggest reason to finance your own home. Individuals can often charge a higher interest rate than is going in the current mortgage market, since they are taking on more risk. This is especially true if the buyer does not have really great credit. They will agree to a higher rate because they are thankful that you are giving them the chance that has been denied them through banks, credit unions, and other lenders.

If your home is in danger of slipping into foreclosure, a deal like this could save your home from being lost completely. If the buyer can give you enough money up-front to catch your mortgage up-to-date, then you could allow them to pay slightly more than your monthly payments. This saves your home and gives you a little extra money to pocket each month. You do still have to move out of the home with this option, but it saves your credit from the devastating hit of a foreclosure.

Risks

The possible monetary windfall from financing out your own home comes with enough risks to dissuade some people from the deal. The obvious downfall is that you are likely dealing with people who have a history of defaulting on their obligations, and you will have a mess on your hands if this happens again. As long as you do the paperwork correctly and contracts have been signed, you will legally have the right to reclaim the home and then either occupy it yourself once again or sell it off, hopefully in a better market at that time. There are uncomfortable circumstances that come with this legal duty, such as having to evict the buyers from the property yourself. No one wants to have to do that, especially if there are children involved or you know the people personally.

Another risk is serious damage to the home. If the buyers trash the home, it is their property in the future and you can do little about it, but if they suddenly pick up and move then a damaged home with greatly reduced value is on your hands.

Before deciding on owner financing home mortgages, it is important to consider all of the risks and benefits and decide if it is worth it. If you can find buyers that you know personally, they will be less likely to harm the property and will be a lower risk.