What is Owner Financing in Real Estate?
If you asked anyone on the street what owner financing is, you will probably get many different answers that range from vague to unclear to incorrect. Why is owner financing such a mystery to the common many, though? The phrase “owner financing” is often confusing, because many think of it as a loan from the seller of the house (which makes no sense, because the owner is selling the house.) Instead, owner financing is very simple. Instead of getting a loan from a bank, the seller simply let’s the buyer pay them for the house every month.
The Self Financing Process
Owner financing occurs when the seller carries part or the entire purchase price of the house during a sale. This means that instead of getting a loan from a bank, a home buyer will simply pay the seller every month with interest. With properties without any existing loans, this process is fairly simple. In these cases, a seller might choose to carry the entire loan and will get to decide the terms of the loan and payment. In cases where there is an existing debt on a house, the existing lender may change the terms of the loan already in process due to a possible alienation clause. This normally, though, is not a major concern.
The Benefits of Owner Financing
So, why do owners choose to finance in the place of bank loans? There are benefits for both sellers and buyers interested in this type of payment plans. For a seller, there are many reasons to owner finance. Often, a seller can command a higher sale price for the home. A seller will then also have a source of monthly income and can receive some tax breaks for that calendar year. Owner financing can also provide a seller with the benefits of interest rates. For the buyer, there are a whole host of benefits. This includes little to no qualifying, flexible financing, and lower closing costs. Since both the buyer and seller don’t have to deal with a lender, possession of a home can also occur faster.
Owner Financing in Real Estate
Even though owner financing can be complicated, that’s not reason not to take advantage of this helpful financial tool. There are many different methods of owner financing that can benefit both the buyer and the seller. By cutting out the middle man, you can even speed the home buying process.