Owner financing can help buyers get into a home

With the economy in a near disaster, today it is much harder for a home buyer to get a mortgage than it was a couple of years ago. Some home sellers are being creative and offering owner financing to qualified buyers.

Getting a mortgage in the past 12 to 15 years has been relatively easy for most prospective home buyers. Creative financing has not been a subject that most have thought about when obtaining a home. The concept of owner financing isn’t new,But in today’s tough real estate markets, a seller that is able to finance the sale of their home may have an edge over other sellers in their market.

Owner financing is great for buyers who may be having trouble getting a loan because they are self-employed or work on commission and with the credit rating required to get a traditional mortgage continually being raised, there are more and more buyers that are not able to get a mortgage.

Today, more than ever there are buyers who have recently been foreclosed on because they had an adjustable rate mortgage (ARM) on a property that they were not able to make the payments when the fixed period of the loan ended and it started to adjust.

To protect themselves, sellers should ask for a sizable (non-refundable) down payment from a buyer when they do this type of deal-especially if the buyer has a weak credit score. Accepting too small a down payment can be a huge mistake because the buyer has less of a stake in keeping the home.

As with a traditional mortgage where the interest rate is based partly on the buyers credit score, a seller can receive a steady income stream from the mortgage payments by asking a higher interest rate of perhaps 7% or more. The buyer can always repair their credit and refinance the home and get the deed in their name at a later date.

There is a down side to owner financing also. If the seller needs money to purchase another home and there is always the risk of the buyer defaulting on the payments which would cause the seller/mortgagor to have to make additional payments on the property while having to reclaim the property through foreclosure.

It is wise for the seller to hire a real estate attorney to craft the terms of the deal, with details including what constitutes a late payment and default, or what happens if the buyer neglects to adequately insure the property.

Unlike renting a house where the owner/landlord is responsible for everything, the buyer in an owner financing deal is responsible for upkeep and maintenance. A good home warranty is worth it's cost for both the buyer and seller. There are also insurance issues to be addressed before the closing.

In the end, the key objective is for the seller to sell the house and the buyer to be able to purchase the house. A win/win situation.