In certain real estate markets, selling or buying a home through owner financing can present a number of benefits to both the buyer and seller. In other words, owner financing is often a viable option for both buyers who can't secure a traditional mortgage and sellers who can't otherwise sell their home (or land). Of course, there are many instances when this type of financing isn't ideal for buyers and, as a potential buyer, you should be well aware of these instances.
Here at Red Enterprises, we've been dealing with owner financing for years. In this time, we've helped many wondering, "Is owner financing right for me?" and given them the information necessary in buying homes through owner financing. This way, they can make educated decisions when purchasing a home. So, if you're interested in buying an owner financed home, read on to learn the ins and outs of this viable alternative.
Owner Financing: Risks to Consider
Before we get too far into owner financing, let's quickly review just what is entails. Simply put, owner financing is just like it sounds. Instead of a buyer obtaining a loan from a bank, the seller of the home (or piece of real estate) lends to the buyer by setting up a promissory note. This note outlines the terms of the loan, the interest, and what will happen should the buyer fail to make payments. Now, let's move on to the possible risks involved.
No matter the buyer, anyone interested in purchasing an owner financed home should be well aware of the risks involved before all else. Owner financing, also known as seller financing, may typically present less risk than traditional lending and buying, but that's not to say this alternative is completely risk free. Take a look at some potential risks below:
- The seller may not have a clear title to the property or still have a mortgage on the property. This could be transferred to you as the buyer if a Due on Sale clause is included in the owner's mortgage (it most often is).
- The seller may not report to credit bureaus, which would result in an unchanged credit score.
- Your interest rates and down payment will typically be higher as opposed to with a traditional loan.
Of course, all of these risks and issues can be avoided with due diligence. Fortunately, we've done some of the initial research for you to help you determine if owner financing is a good option.
Is Owner Financing Right for Me?
When it comes to owner financing, there are many instances in which it makes sense for certain buyers to take this alternative route. For sellers, it's often a viable option when they need to sell a home fast or the market is tight. For buyers, buying an owner financed home is often a necessity. Take a look at the typical reasons for buying a home through owner financing below:
- Low Credit Score: Quite often, buyers with low credit scores can't obtain the loan to purchase a home. In this case, owner financing is typically a good choice as the seller will usually be more flexible in determining interest rates and down payments.
- Low Down Payment Required: A high down payment is often the reason buyer's can't acquire the necessary loan. However, sellers are usually forced to offer lower down payments since they're often seeking to sell the property fast.
- Need to Buy Fast: Whether you've moved to a new job and location or need to relocate from a severely damaged property, among other reasons, the seller financing process is typically quicker than traditional buying.
Interested in Buying? Call Us Today!
Of course, there's plenty more to consider when purchasing a home through owner financing. If you feel it may be a viable option for you, you can contact us today for more help. You can also give us a call at 307.213.9095. We'd be happy to help!