You scale the market and your dream of being a homeowner is about to be realized…but then you find out that you cannot obtain a mortgage loan. Or you are in a rush, and you don’t want the hassle of a long, dragged-out application process. What other option do you have? Owner finance, or seller finance as it is also known! Let’s look at the benefits of going this lesser conventional route.
But First: What Is Owner Finance?
In a nutshell: It is when the seller finances a home, and the buyer pays the installments directly to the seller, and not the bank.
1. A Good Solution To Conventional Bank Mortgage Challenges
Sometimes buyers just don’t qualify for a mortgage from the bank, but it doesn’t mean that they aren’t able to afford home repayments. Here the seller can also benefit, as this puts him in the position to earn more interest from the sale. The buyer will pay balloon payments, starting at any time between five to fifteen years from the original date of purchase.
This option also eliminates standard financial requirements, such as a deposit, repayment installments, and balloon payment amounts are strictly between what the seller and buyer agree upon.
2. Dodging The Uncertainty Of Time Delays
Should a seller be in a rush to sell his property, a long and dragged-out application process might cause a bit of a headache. The same applies to the buyer if he doesn’t want to wait several months before he can claim and move into his new home. The owner finance option ensures a smooth time transition for both the seller and buyer.
3. Reduction Of Closing Costs And Processes
This puts the seller in a good position, as he can sell the house as-is, and without the mandatory inspections and lenders’ appraisals. The buyer also benefits greatly, as there are no transfer costs at this point. Within a couple of years, when the buyer has enough equity in the home and is in a better financial position, he may qualify for a mortgage and the title deed can be handed over to him.
4. Both The Buyer And Seller Are Protected
It may seem risky for a seller to have this type of contract with a buyer, but he gets to keep the title deed until the last payment is finalized. Should the buyer default on his payments, the property is still registered to the seller, which ensures that he won’t get stuck with a financial burden. The buyer then also loses his investment in the home and the seller can re-sell again to someone else.
The buyer will have the security of a legal contract between himself and the seller. A tip to the buyer: he should first speak to a qualified real estate attorney to find out about his rights. Even though this transaction can be straightforward, it is always good for the buyer to know exactly what his rights and obligations are, should future disputes arise.
5. Sellers Can Sell Their Homes That Don’t Qualify For Conventional Loans
In some cases, properties don’t get appraised by lenders due to factors such as environmental hazards, pest infestations, the presence of harmful materials such as lead paint, asbestos, or radon gas, to name but a few. Should the buyer be aware of these factors and still want to proceed, it is all up to him.
Buying a property can be complicated and stressful, and both sellers and buyers should explore all their options before signing on the dotted line.
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