Using Owner Financing To Buy A Home? - My Thoughts and Advice

Should you consider buying a home using owner financing?

Too often this question is asked and I see the same situation over and over again. Today I wanted to explain a bit more about what exactly owner financing is, how it works and why it is used.

What is owner financing? It is often referred to as Seller Financing and it is just that, where the owner of the property finances the mortgage to the buyer. Please know I am not talking about rent or lease to own, that is a separate type of transaction.

Why is owner financing used by buyers? Buyers who use owner financing usually can not qualify for a loan for various reason. Often the buyer doesn't have good credit, a sufficient down payment or other variables that lenders look at like enough time on their job. Other reasons also include problems not so much with the buyer but with the property. So for example a property may not be mortgage approved, such as the sales price did not appraise or the condition does not meet the mortgage company's guidelines.

For whatever the reason the buyer and seller will agree to this type of financing to bypass any of the issues I listed. So what do the terms usually look like? The terms vary but usually they are not long term like a normal mortgage instead they are usually for as little as one year, two years, five years or ten. Generally the seller doesn't want to finance for long because they want their money too!

So the down payment can be higher like ten percent, fifteen percent, twenty percent or higher. The interest rate is much higher than a traditional mortgage because remember the buyer is generally a higher risk borrower. Balloon payments are also very common, which is designed to motivate the buyer to pay it off early or refinance it in to their own financing.

The reason I don't recommend it is because it isn't to the buyers advantage, often it is to the sellers advantage for various reasons. Some reasons include the seller gets to get rid of a property at a higher price, less than desirable condition or just gets rid of a property that the market just doesn't want. There are many reason and most if not all are in favor of the seller.

So what do I recommend to the buyer? RUN!!!!

No really, don't do it, instead work on what you need to work on to be able to qualify for your own loan with a traditional mortgage. Yes I know it doesn't sound fun and sexy but the reality is in the long run having a better mortgage will be to your benefit. I always like to think in the long run and seller financing just doesn't play to the buyers advantage in the long run. If anything it usually sets you up for more problems if in the future you can't sell the property, fix it, or refinance it in to your own financing.

I get asked about owner financing multiple times a week and the answer never changes. I am always honest with people and tell them my thoughts. My thoughts are not always popular but I am always wanting to make sure my clients are informed and being looked out after not just trying to make another sale.

I hope you picked up a thing or two! If you are in the Dallas Fort Worth are or in North Texas and want to talk about buying, selling or just real estate feel free to reach out!

With the heart of a teacher I look to educate my clients about the process of buying, selling or renting real estate. I strongly feel an informed and educated consumer will be more confident & make better decisions.

Have questions about this or other topics, do not hesitate to contact me.

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Luis Cuevas, Broker/Realtor®

Serve Realty

(214) 783-0535

Luis@ServeRealtyTx.com

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