Similar to buying and selling real estate notes, owner financing can be a great investment opportunity, but it's also a viable means to selling a house when buyers are scarce. Though the process can be quite complex, owner financing typically presents a lower risk to both parties. Overall, this type of mortgage lending can offer advantages to both the seller and buyer as closing costs are cheaper for the buyer, while the seller can retain the title (and asset) until payments are completed. When done right, owner financing is quite advantageous.
Here at Red Enterprises, we're more than happy to help those interested in owner financing. While it's often lower risk, the process itself can be quite complicated. No detail can be overlooked, and the experts here can help ensure you have all the necessary information before entering a housing contract. With this, take a moment to learn more about owner financing and how it works.
Owner Financing Defined
Simply put, owner financing is a real estate transaction in which the seller of the property also holds as the lender for the buyer. In other words, the seller lends the necessary credit, rather than the money, to the buyer, and accepts payment with interest over a predetermined period of time, as a mortgage lender would. Also known as seller financing, it typically takes place when the seller can't find buyers or the buyer can't acquire the funds from a traditional lender. Quite often, the seller will demand a higher down payment, though closing costs are typically lower without bank fees.
Types of Seller Financing
Of course, there are multiple types of owner financing. To get an idea of how each arrangement works, and which may be right for you, take a look below:
- All-Inclusive: Just like it sounds, an all-inclusive mortgage involves the seller holding the promissory note and mortgage for the balance of the real estate (typically land or homes).
- Land Contract: As mentioned previously, land contracts don't allow the buyer to obtain the title until they've made the final payment. The buyer does, however, receive an "equitable title".
- Lease Option: Similar to renting in a sense, the seller agrees to lease the property to the buyer for an initial fee, though the seller must sell the property within a predetermined period of time.
Owner Financing: Potential Benefits
Though owner financing isn't for every buyer and/or seller, and can even present a few risks, it can be a great investment opportunity for the seller and a way to afford property for the buyer, when executed properly. Here's a number of potential advantages for both the buyer and seller:
- Provides a way to purchase property for a buyer who otherwise couldn't acquire the loan.
- Lower closing costs for the buyer.
- Quicker cash upfront for the seller.
- Flexible down payment.
- Sellers can always sell the promissory note for quick lump-sum.
- Seller can retain title in case of default.
Have Questions? Call Today!
While we've explained the key points of owner financing, there's plenty more to know before you delve into the process. If you're interested in buying a house through this type of mortgage lending, be sure you have all the information and resources. For help, you can always give the experts at Red Enterprises a call, and we'll happily provide you with the info you need!
You can give us a call today at 307.213.9095 or contact us here!