Owner financing? Why on earth?

threepinktreesMarch 19, 2014

I had someone ask if we were interested in selling our home with owner financing. I, of course, said we were not. But it made me wonder why someone would ask, and why a seller might say yes. Has anyone been on either side of this? Do only buyers with awful credit ask for this or is there another reason? Just curious!

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gingerjenny

if a house is being difficult to sell it opens up a new pool of buyers. If they default you get the house back a lot of times and all the money they paid into it.

    Bookmark   March 19, 2014 at 6:31PM
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rrah

Seller financing could speed up the process as one doesn't need to wait for loan approval. It's not necessarily awful credit overall, but it could be a single occurrence in a life long credit history due to temporary unemployment or a medical emergency that led to a reduced ability to get a loan. In cases like this the loan is for a short period such as a year or two.

In some instances a loan maybe difficult to find. For example, lot loans are becoming more and more difficult to find without a substantial down-payment. My H and I own a vacant lot. We may or may not build on it. We would entertain seller financing. When interest rates were very high in the 1980's, my parents did seller financing for a business they owned.

I suspect right now it's most often a single blip that makes it difficult to get a loan and creates a need for seller financing. There were/are a lot of people in upside down real estate markets that were forced to do a short sale or went into foreclosure.

    Bookmark   March 20, 2014 at 8:13AM
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saltidawg

In the late 70s and early 80s it was quite common to find owner financing because mortgage interest rates were as high as 18%. A seller financed loan at say, 12%, would possibly enable the buyer to afford the house, allow the seller to sell the house, and provide the seller a guaranteed secure 12% return.

In the current times a 4% guaranteed secure loan might not look so bad as an investment.

This post was edited by saltidawg on Thu, Mar 20, 14 at 12:14

    Bookmark   March 20, 2014 at 8:58AM
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rafor

I recently did this. March of 2013 my house sold in 24 hours. They had a house to sell. My realtor knew I had paid cash for the house 3 years earlier and she asked if I would finance the sale until they sold their current house. I said that was too open ended but that I would carry the mortgage for a year and they would then owe a balloon payment. I named the interest rate and they paid me monthly. After 5 months, their other house sold and they paid off the mortgage to me and the whole deal was done. I made a great interest rate and they got to move in right away. Win win for both sides.

    Bookmark   March 20, 2014 at 1:55PM
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threepinktrees

Thanks all! That makes much more sense -- I can definitely see there are cases where it would be a wise move.

    Bookmark   March 20, 2014 at 1:59PM
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artemis78

It also happens where we live because home prices are ridiculously high--so sometimes to get a house sold, sellers will finance a second mortgage for 10% of the cost to let an buyer who doesn't have enough downpayment or only qualifies for a lower payment officially get into the house. Used to be an option through banks but increasingly they are cracking down on that and not offering second mortgages for purchase.

    Bookmark   March 20, 2014 at 3:36PM
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nosoccermom

Benefits of owner financing for seller (may also include tax benefits). See below.

Here is a link that might be useful: Owner financing

    Bookmark   March 21, 2014 at 2:36PM
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cmarlin20

Some sellers like the income.

    Bookmark   March 21, 2014 at 3:43PM
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ncrealestateguy

The property should be paid in full before offering seller financing. Otherwise, you will be breaking laws.

    Bookmark   March 22, 2014 at 8:10AM
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nosoccermom

Not necessarily. See info below.

Here is a link that might be useful: seller financing with existing mortgage

    Bookmark   March 22, 2014 at 11:07AM
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ncrealestateguy

The article states that it is going against the law. It explains how to work around the regulation. And then states that the lender may foreclose or call the loan. It advises for the buyer to pay the old homeowner directly, instead of the lender. Who in their right mind is going to pay their mortgage payment to the seller, in hopes that they forward it on to the lender?
And then there is the insurance company to deal with...

    Bookmark   March 22, 2014 at 12:02PM
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