There are many people who want to become homeowners but aren’t able to qualify for a mortgage. These individuals will sometimes turn to the seller of a home to see if the seller will provide financing. This is a big decision for sellers because of the financial risks involved.
If you are considering owner financing, make sure that you understand what this means. Because these situations must be handled in precisely the right way, using a lawyer familiar with this component of real estate law is a good idea.
Owner financing terms vary
Not all seller financing terms are the same. There are two primary types of owner financing that you need to think about — wraparounds and traditional financing.
The first is a wraparound transaction. This means that the seller provides financing, but the seller still has a loan on the property. The buyer has to make a down payment in exchange for a warranty deed and a note from the seller. The buyer pays the agreed upon payments to the seller. The seller then makes his or her payments to the mortgage holder.
The second is the traditional seller financed transaction. In this case, the buyer gets a warranty deed with a lien on it for the balance of the sale. In this type of transaction, the seller would be able to foreclose on the property if the buyer fails to make the payments.
Points to remember
A seller in this situation won’t get the full balance of the loan all at once. This might be a deal breaker for a seller who needs the money from the sale of the home to put toward the purchase of a new home. On the flip side, the seller might be able to get enough from the buyer’s down payment to put a down payment on the home he or she is purchasing and possibly to cover other bills.
An owner financed home is a way that the homeowner can cover the costs of the mortgage without having to use a short sale. This is a huge bonus for some owners who need to get out of a home but don’t want to have a hit on their credit.
Often, a seller financed home will go through the closing process faster. The cost is usually lower for the buyer due to cutting out the middle man. There is a chance that this can mean the seller will walk away with more money at the end of the transaction. Ultimately, it takes a responsible seller and a trustworthy buyer to make this transaction work.