Owner Financing – What Is It?

By Author: Casey Hicks
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Owner financing is the act of the seller acting as the bank. The seller will receive monthly payments from the buyer just as they would from any lending institution. The buyer is then treated as the owner of the house, just as a person would be treated if they got the loan through GMAC, Freddie Mac, etc. The owners can make improvements, add on, and basically anything they want, as long as it doesn’t take value away from the home.

Buyers are interested in this type of deal because they obviously cannot get a loan from the bank because of poor or no credit, low income, or an unsteady income. These buyers are larger risks, so owner financing does not give the buyers very good terms, however, in many people’s eyes, it beats the alternative of simply renting an apartment or a house.

Buying a house through owner financing has advantages and disadvantages. Owner financing a house give the buyer the ability to own a home, when they couldn’t otherwise. It allows the buyers to build equity in an investment, instead of just throwing it away paying rent. Unlike renting, with owner financing, there are little to few ...
... guidelines and rules to follow.

One of the main disadvantages of buying a house through owner financing is that the equity in the house is not held if the buyer defaults are decides to move. They cannot sell the house themselves. It goes immediately back to the seller. The buyer will also receive higher interest rates, usually around 10%. This is not ideal, but people looking to own a house who cannot receive conventional financing do not have much bargaining room.

With the disadvantages and advantages of owner financing for the buyer,
there are also several pros and cons for the seller. This method of sale gives the seller the ability to create a long term income stream that could virtually last infinitely. (until the house crumbles to the ground) How? If buyers put up a down payment, live in the house for five years, then move out or default, the seller gets the house right back, and does the same thing again, and again. Owner financing can also allow the seller to make money on the property, if they wouldn’t make money selling it outright. There is also a very large market of good people with poor credit who are anxious to move into and purchase a house.

Owner financing is easy to do, and easy to set up. All you need is a valid contract, and you will be good to go.

The problem a seller has with owner financing is that it is a long term profit, and does not immediately put thousands into their bank account. The seller also has to deal with the billing and collecting payment from the buyers. The last disadvantage sellers have is that they have to “re-do” the house after the buyer moves out. As a rule of thumb, you would like the down payment to be able to cover the needed repairs such as new paint, flooring, etc.

Owner financing can work excellently with both parties. Even though there are disadvantages to each, they both have one thing in common. The buyer wants a house, and the seller wants to sell a house. As with anything, if you want something bad enough, generally you are willing to give something up in return.

All in all, in my experiences with owner financing houses, it has always worked out well for both me and the buyers. Short term, the buyer gets a house they’ve always dreamed of, and long term, I make more money than I would selling it outright.

To learn more about what is owner financing, real estate investing and other entrepreneurial tips, visit my website at http://www.caseyhicksblog.com