What Is Owner Financing?

Definition of Owner Financing

Owner Financing is also called seller financing and refers to a technique that is used to finance a home wherein the buyer borrows the money to purchase the home from the seller rather than procuring the loan from (or possibly in addition to) a bank or lender.  It is a useful tool for buyers who are unable to qualify for a loan for the full purchase price less the buyer’s down payment.

Instead of using a bank or other lender, the buyer provides the owner/seller with a financial instrument serving as evidence of the loan and then makes monthly payments to the seller.  Because of the changing economy and the fact that the credit market has really slowed down over the past couple of years, it has become difficult for more and more people to obtain financing.  This is evidenced by the growing popularity of owner financing as well as becoming a viable alternative to the more traditional types of financing.

Advantages of owner financing for the buyer

There are 5 key advantages of owner financing that benefit the buyer:

  • Very little qualifying if any – granted the seller may want a copy of the buyer’s credit report, but their qualifications will be less strict than that of a traditional lender.
  • Financing tailored to the buyer’s needs – unlike with banks and other lenders, the buyer and the seller have a variety of financing and payment options (e.g. balloon payment, fixed-rate amortization, interest-only, or less-than-interest)
  • Flexibility with down payments – there is usually room for negotiation with the amount of the down payment.
  • Closing costs are lower – typically, when a bank or lender is not part of the financing equation, there are no loan closing costs or discount points that have to be paid unlike with conventional financing.
  • Faster time of possession – because both the buyer and seller are not subjected to a bank or lender approving and processing the loan on the home, the deal usually closes faster and the buyer gets to take possession of the home faster.

Advantages of owner financing for the seller

There are also certain advantages that benefit the seller as well where owner financing is concerned, including:

The house will usually sell for a higher price – the seller may be able to sell the home at the full listing price or even a bit higher when offering the buyer owner financing.

Breaks on paying taxes – the seller receives a tax break because they only have to report the income earn off the loan for the calendar year.

Monthly cash flow – owner financing generates a guaranteed monthly income for the seller while the loan is being repaid.

Interest rates are usually higher – typically, the interest rate will be higher compared to that of a bank or lender for a traditional home loan.

Shorter listing period – when a seller advertises owner financing available on their home, it typically separates them from the other properties and entices a different set of buyers.

There are many mortgages for bad credit available on the market today.  We just happen to be one who does it with no credit check regardless of your paste credit history.