Should You Go For Owner Financing?

By Sarah Bennet

In classified sections nationwide you'll come across the term 'owner financing'. Owner financing means that the buyer of a home makes the monthly payments directly to the seller of a home.

the advantage of owner financing for a buyer is that it allows him to purchase the home without applying for a mortgage. Because the loan is profitable for the seller, he can choose to sell the loan to an investor for cash.

An investor is going to ask some questions when a seller tries to sell this kind of loan. Of course, investors see this as just another note, so they want to have some information to back their investment up. They will ask about the condition of the home, the financial situation of the buyers and maybe most importantly: are they making their monthly payments every month?

If you're a seller, there are a couple of advantages to owner financing. Buyers will happily pay you market value and more, because of the special nature of this deal. They are motivated by the fact they don't have to go and qualify for a mortgage.

With owner financing, you can sell faster and charge higher interest rates for the loan. Because of the special financing, many people will be interested in this type of deal. If you increase the interest rate, the loan note automatically gets more attractive to an investor.

Of course, there are distinct disadvantages to owner financing. If a buyer stops paying, you still need to pay the monthly mortgage payments because it's still your mortgage. That's why you need to be extra careful in selecting the right buyer when doing owner financing. Don't be afraid of turning someone down, because not every buyer is a good buyer for you.

About the Author:

Sarah is a financial advisor writing about mortgages and finance. She also writes about maximale hypotheek and hypotheek in Dutch.