Understanding Owner Financing:
With owner financing terms, the seller of the property seller literally functions as the bank. The seller holds the note on the property and the purchaser must make principal and interest payments directly to the owner per the terms of the agreement entered into by both parties.
Unlike conventional loans, sellers and buyers can choose from a variety of payment options such as interest only, fixed-rate amortization, less-than-interest or a balloon payment.
Payments can mix and match. Interest rates can adjust periodically or remain at one rate for the term of the loan
If the borrower does not make payments in a manner consistent with the finance agreement, the owner can foreclose on the property.
A Quit Claim Deed is typically taken out at the time of the sale to facilitate the property's transfer back to the owner if the purchaser does not make payments as required. As with a bank loan, if such action is necessary, the purchaser will lose any money that he or she has paid toward the purchase of the property.
In order to protect his or her own interests, the seller may require a higher down payment than a mortgage lender would. Down payments of 20% or more are not uncommon in owner financing. The deed to the property is usually not transferred to the buyer until all of the payments have been made, but because no institutional lenders are involved, the overall terms of financing are much more negotiable, and can be set up to provide benefits to both the seller and the buyer. The buyer saves on points and closing costs, while the seller can obtain monthly cash flows that provide a better return than fixed-income investments.
Reasons for Owner Financing
Many sellers find offering owner financing to be appealing, particularly if they own the property free and clear at the time of the sale. Rather than receiving a single lump sum payment that may have significant tax implications, the owner can spread income from the sale of the property out over a period of time plus earn additional income from interest on the loan.
In addition to these benefits, offering owner financing can facilitate a faster sale in not everyone can qualify for a mortgage loan from a bank or mortgage company. Individuals who do not have the means to pay cash for a property but who aren't likely to meet lender financing requirements often seek out properties where owner financing is a possibility.
Home Buyer Benefits
Lower Closing Costs
Without an institutional lender, there are no loan or discount points to pay. No origination fees, processing fees, administration fees or any of the other assorted miscellaneous fees that lenders routinely charge, which automatically saves money on buyer closing costs.
Because buyers and sellers aren't waiting on a lender to process the financing, buyers can close faster and get buyer possession earlier over a conventional loan transaction.
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ENCEL HOMES REALTY LLC
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