Real Estate Investing: All About Owner Financing
As you go about learning about all the tools and options available to you once you own a home, it is important to understand how owner financing can help you make the most out of your real estate investing. The more financing options you have, the better your choices. Perhaps now might be a good time to revisit owner financing in detail.
Intro to Owner Financing
When we talk about owner financing, we mean that you, as a property owner, transition to a role of a lender. In layman’s terms, owner financing means that you act as the bank for anyone who is interested in buying your property. There’s no other third party involved – just you and a potential buyer of your property.
Owner financing is also known in certain circles as creative financing, even seller financing, which is fitting since you’re selling the property directly to the buyer. One of the most significant advantages that owner financing gives individuals is that you and the home buyer can cut out banks or other financial institutions out of the picture.
How Does It Work
In real estate investing, owner financing works if a few conditions are met. One, the owner of the property should own it 100%. Second, both the buyer and the owner should agree to mutually decided terms in letter and spirit.
If a owner has a 100% equity position on the property to be sold, then its relatively straightforward.
Traditionally, the buyer might be making payments to the bank. However, if they opt for owner financing, all payments must be made to the owner. The monthly mortgage payments should be made after agreeing to predetermined terms as part of your owner financing agreement. All payments will be governed by the agreed-upon interest rate, repayment schedule, and penalties in case of any default.
Benefits of Owner Financing for Buyer and Seller
Owner financing has a lot of advantages for both the buyer and the seller. Let’s take a look at how it benefits both the parties.
Buyer
It goes without saying that the buyer has it good when it comes to owner financing. This is because you have the power to negotiate over each and every aspect of the terms. However, to gain the maximum advantage via owner financing, buyers should work on developing familiarity with how to negotiate like a boss.
Plus, buyers have the option to make the home owning process go a lot smoother than traditional banks since they won’t have to worry as borrowers with the same stringent processes that banks subject you to.
Seller
If you are looking to buy a home directly from a homeowner, sellers can benefit from increased flexibility while negotiating terms with buyers. Again, owner financing primarily tends to favor buyers, but when it comes to a better rate of facilitating deals, nothing comes close. There’s more than one way to do transactions when dealing with sellers, another win-win situation.
Owner financing gives homeowners one more option to put their property on the market. In fact, sellers might even get a bigger down payment than one they could’ve gotten if the mortgage’s terms were dictated by a bank.
Conclusion
Because buyers and sellers are not restricted by the bureaucratic red tape they could otherwise have to navigate when banks are involved, owner financing does offer an attractive alternative. If the terms are agreed upon mutually and implemented carefully, there’s no doubt that owner financing can prove to be a better option for all parties involved.