Is Owner Financing A Good Idea? Pros and Cons
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- เผยแพร่เมื่อ 1 มิ.ย. 2024
- Is Owner Financing A Good Idea
Owner financing is where the owner/seller of the property you want to buy acts like the bank.
Instead of getting a traditional mortgage, the owner provides financing so you can buy the home you want.
Sounds great! No dealing with lenders and the home buying process, so, what’s the drawback?
Owner financing is typically much more costly in the long run and can introduce risk and unknowns into your home planning situation, which is especially awful if you’re trying to build wealth with real estate.
Owner financing is an ok, not good, but ok idea for people who cannot qualify under the tight restrictions of a regular mortgage. Owner financing is a decent short-term solution, but it should not be long-term.
If you enter into owner financing, you need to have a gameplay to get into a safer, cheaper, traditional mortgage within 3-5 years of starting the owner financing.
Here are some pros, cons, and what to consider when looking at owner financing:
Pros
- Faster closing - no processing time for the home buying process
- Cheaper closing - no bank fees or appraisal costs
- Flexible down payment - no bank or government-required minimums.
- A good option for buyers who are not able to secure a mortgage
Cons
- Higher interest - the interest you pay will likely be higher than what you’d pay to a bank.
- Will still need seller approval - even if a seller is game for owner financing, he might not want to become your lender.
- Owner responsibility - the owner doesn’t pay their mortgage
- Balloon payments - with many owner financing arrangements, a large balloon payment becomes due after five years. If you can’t secure financing by then, you could lose all the money you’ve paid so far, plus the house.
- Doesn’t go on credit so you don’t get the benefit of on-time mortgage payments
- Might not be recorded on title meaning you don’t own the house
What to watch for:
- Don’t worry about the rate or payment, owner financing is not a long-term solution
- Focus on “dangerous features” like interest only, balloon payments, etc
- Make sure the payment is within budget for you and your long-term gameplay
- Have an exit strategy
Hey, my name is Kyle and I'm a Mortgage Advisor serving Tennessee, Florida, and Ohio. My goal is to help you get a crystal-clear home loan that helps you win the house you love. If you're ready to create your home-buying plan, you can reach me through any of the ways below:
winthehouseyoulove.com/
-- Legal --
NMLS# 1701021
Motto Mortgage Alliance
www.winthehouseyoulove.com/
8900 N. Dixie Dr.
Dayton, OH 45414
Equal Housing Opportunity
Allot of good info here, two points I wish you stated is that in owner financing all terms are negotiable and the wiggle room on Rate, amortization term is solely based on the owner. There are no term regulations, also ownership is never a risk if you pay for an attorney and title company. Close on record the right way because you are suppose to be on the Deed DAY of closing or it's not a sale it's a lease.
This actually made sense! Thanks.
Yeah I’m gonna go owner financing over being tied to a bank. Plus I personally don’t believe in credit/debt or owing people through a third party. I buy what I can afford, and I feel that most people definitely live above their means then complain about being broke 😂
Iv seen many websites specifically made for owner financing too. But then again I’m not looking for a house, just undeveloped land with no HOA, no building time limits, or obligations.
It’s definitely not hard to afford 100$ payments on a 6,000 piece of land with the option to pay it off sooner.
Just seems easier than talking to banks and jumping through hoops. With this route I can literally afford to work seasonal jobs and travel a few months out of the year and still be able to afford those tiny payments. Just makes more sense for my minimal lifestyle.
Be weary of owner finance land you can’t build on until you pay the full amount
@@jalanit123 thank you!! I did not know that. Cash seems like a better idea then I guess. Maybe just start out with a 5000$ limit for the first property. Can you pay your property taxes years in advance??
@@jalanit123 wait wait wait. Doesn’t it just depend on who your doing business with and if there’s specific terms in the contract ? Couldn’t I shop around and get lucky with an owner that I click with and just get a better deal like a lot of other transactions ?
I Love the art of contract writing. Like worst case scenario: I get into a regular contract deal with the owner on a 7k piece of property, we agree on whatever down and whatever a month, can’t we go the route of them allowing me to build as I’m paying it. Then specifically have written in the contract as a consequence of failure to make a payment then I as the buyer thereby understand that they take it back over and keep everything on the property. That way they feel like they have the upper had in which worst case scenario they get to kick me off the land and keep my house. But on my end of this I don’t actually care because I know for a fact I’ll make every payment. We both win. Also have in the contract that I can pay it off sooner. I’ll take a low ass monthly payment knowing damn well I’m just gonna double or triple the payments anyways to pay it off faster. That’s leagal and would work if I ended up talking to the right person ?
ignore 9
@@jalanit123 You don't have to worry about that if you have it set up through land trusts, i can tell you more!
You've taught me a lot with your straight forward videos. Keep up the excellent work. This video and the USDA loan are 👍
Thanks so much, glad to help!
Man that really helpful information thank you a lot.
But I want to mention about your voice through this mic, is really clear and amazing and great tool to recoding your videos.
Thanks
Thank you so much!
I purchased a trailer on a lot this way years ago ! The seller owed more then he could sell it for at the time. I look at it as 5% interest the bank would get on a loan. I only paid what was owed on the trailer !
Very good video. Gave absolutely to the point information about owner financing while being very calm and professional while explaining the points. @Kyle I didn't understand though the concept of Balloon payment especially if you have amortization statement for 30 years. Could you please clarify how does this work?
This was wonderful! I love your calm demeanor. Thank you for explaining 💛
You are so welcome!
Great video. I was really happy to get clarification on balloon payments.
As a small business owner who does not have three years of returns and a desire to move out of state, owner financing is my only option. These videos are very helpful, thank you!
Glad it was helpful! Thanks for watching. :)
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This is if you are a person who wants to buy one property to live in.
Meanwhile if you are an investor it is a great strategy to try and get owner financing when you can from the seller
Thanks for sharing your perspective. :)
land trust is the answer to documentation and legal footing, with the control of the property in your hand completely...check us out on becoming land trust smart!
I bought a house in Puerto Rico with 5 acres for 50,000 thousand but the property price today is 125,000 I gave a15,000 dollars down so I own 35,000 at 5 % for 5 years . I use a lawyer and with the closing cost and lawyer services was 2,450.00 that I end paying . I didn’t worry using a bank even I got a 821 score on my credit report I got the best deal of my life. And when I buying houses I will deal with seniors like in the 80’s they will not give you a hard time
That's amazing!!
Alpha1 cual pueblo?
Buying a house in the US is a fight for life and it gets worse if you are a working person who works for someone else. Jobs are at will and you can be laid off at anytime with or without a cause. Pray to God not to let a Karen or bad people move next to your house when your neighbor moves out. Taxes are serious and that's a pain. You have to pay taxes for the school district even when you don't have children going to school. Anything breaks or if in need of any service, expect to spend big money. Since day one you're fair game for "Telemarketers" and if your phone doesn't ring all the time, beware of those knocking at your door. Thieves are another issue, some break in, others "break you in" at gun point.... and there's more. In your job, when the bosses are aware you own a home and are making payments they take advantage of that and make your life miserable and very stressful (Not everyone is like me where I don't give a crap and I make a good use of the "at will" with a fuck you and I'm out of here... ), when you have such responsibilities, you become a Dilbert taking your bosses' crap followed by a "Thank you boss". Another thing, when buying a house, for the first 5 years all those payments go to interests. May as well live in a one bedroom apartment living cheap for 5 years and make those payments to your own Savings Account or to something that will make you even more money (Buy a car cheap, selling it for a big profit, etc.) after the five years, with all the money go to County and buy the taxes people owe and are behind the taxes...if they don't pay you proceed next. Also, buy foreclosure, fix them a little and sell them or hire a company to rent those houses for you.
nice video , very well explained.
Glad it was helpful!
For whatever reason I could not start a new comment thread so my apologies in advance. This was helpful but I have a few questions. The property neighboring my parents is going for sale for 100k (cheap for our area). I do qualify for traditional loans have about a 670 credit score with 10k for down payment ( which I would be taking from 401k). However, there is a single wide manufactured home on the property (recently remodeled very livable for the time being) and traditional financing is not available because of the mfg. Soy main question is would it be refinancable?
So help full ty
Glad you think so. Thank you!
Seems to be having some confusion between owner financing and subject to....you have more leeway on price, interest rate and terms with OF compare the traditional mortgage.
Thank You 🙏
My pleasure. :)
I absolutely love this! I’m refreshing myself on O.F so I can get an investment property that I’m interested in and this was a good refresher! Also, You have a great speaking voice! Do you sing? (I see the guitar so I’m assuming you do)
Thank you! Yes, I do sing and play the guitar. :)
If you are looking to buy an investment property, come find out more about being land trust smart, 22 templated docs to secure your deal
Please tutor me?? Like who manages the payments? Like the scrow account of whats owned and how much you paid and how much you have left? Whats that called and who takes care of that? Title company? 3rd party company? whats that called?
If the buyer builds equity in the property, does that work in the buyer’s favor when they attempt to finance out of the land contract?
I believe in the first minute you were discussing an AITD or a "wrap" where the sellers loan is not satisfied or paid off before the sale. Those are and can be a mess. Traditional seller financing is different.
Thanks for the correction :)
I have a good relationship with my sister, who owns the house with 3 apartment. I live in one and two rental apartment with tenants. Would it be good for me to do an owner finance? Because my sister mentioned it.
Isn’t there also a cap on the interest-rate that the seller can charge since he’s not a broker? I was thought it was 10%. Not sure if that’s a CA law or Fed?
I don't understand from the seller's point of view...
If the house is worth 200k...and someone wants to buy seller finance...
Does the property Owner/Seller Literally shell out 200k or does the BUYER give say 20k down, and pay the rest in payments over the next 20years to the seller? BUT due to the high interest the Seller makes more money than if they were to sell outright?
I am glad you stated that the owner may never put the buyer on title , that means buyer has no rights . At the end of the term the buyer may not even own the home , and seller say can claim buyer was a renter . yikes!
It’s definitely a scary line, but the buyer can still have rights to title executed through the land contract. But it can create a huge hassle and litigation if the title holder doesn’t comply with the contract. The land contract is a legally binding document, so the seller can’t legally claim anything outside of it. But it can be more of a pain to deal with issues than if the buyer is the sole title holder
Any advice on seller financed businesses?
There is always the earning of 6% interest for a long duration with the security of having a RE asset should there be a default. I rather take my chances financing my house than having my money in a bank
Your mic volume is too low. You probably know more about financing in your little pinky than I know as a whole, but...I dont agree with the credit recording having any effect on your decision to buy something through owner financing. I raised my credit score about 300 points to the near 800 mark and Im still on YT researching owner financing. Why? Because credit score doesnt mean much if your employment history isnt strong. I cant/couldnt find any major financial institutions to give me a traditional loan bc Im a contractor. Meaning I make decent money, but I am not on anyones books bc Im a 1099 and only work about 6 months out of the year. I had/have OVER 20% to put down...and guess what...they dont care. My point is - credit score is a joke. Id say youd have an easier time finding a traditional loan w/a strong employment history and a 500 credit score than the other way around.
hey kyle,what type of microphone do you use? im looking for a new one for a podcast and this sounds great,thanks!
Hey! I use a Neumann TLM 102
Can you please look over a Seller's Finance offer I rec'd from my landlord. Im just really unsure if it is a good deal or not. Its literally lest than 1 page long. Lol I just dont know if I am about to get myself in a sticky situation or not. Please Help!!!
Shoot me an email → kyleseagraves@hey.com
Do you have a video for land owners who want to finance? Pros and cons
I don't currently, I'm trying to keep the main theme of this channel focused on home buyers at the moment.
That would be a great video idea.
The answer to the major problems with owner financing is null and void with land trusts done the right way.
Hey Kyle , where is the payments made typically for owner financing? I would feel most comfortable with setting up and paying with a third party that has legal backing and documentation etc , is this optional /customary?
Hi Davion, land trust is the answer to documentation and legal footing, with the control of the property in your hand completely...check us out on becoming land trust smart!
Hi@@landtrusthub , so I am still trying to grasp the concept of what a land trust is , so can a land trust used with other financing and or subject to transactions ?
@@Davion_savant Hi Davion, I replied but i'm not sure if you received the info
message me on FB for info. links are not allowed in this comment thread.
@@Davion_savant I hope you found the answer to that question Davion. If not, the answer is YES, you can use Land Trusts with any type of financing. It is an awesome and efficient private way to hold your properties. I would love to go over the number of benefits that are necessary for a real estate investor or even homeowners.. A few of the pluses are you get your property insulated against sue happy people, protects your assets against judgements against you personally, protects your personal credit, great way to leave to your beneficiaries, no need to go through long expensive probate, and for me the best use is to safe guard your purchase deals using subject to and owner financing deals.
I guess I'm stupid because I'm having trouble understanding seller financing. I get the basics of owner financing: the owner gives you a loan for the house and you pay them back instead of going through a financial institution. If the owner has an active mortgage, they take the money you give them and pay on the active mortgage right? What if they don't have a mortgage? That's what I'm having trouble grasping. In the situation, the owner gives you the loan in the form of the house correct? Like you make a contract stating that they will pay you lets say 60k at a 10% interest and you simply just pay that until the end if the contract right? Or does the owner actually give you money and you pay it back with interest?
You're not stupid, it can be confusing! :)
If the owner has a mortgage: this can be difficult to due because it can trigger a due on sale clause. Often, this situation is done using a Land Contract where the buyer is given "equitable title".
If the owner doesn't have a mortgage: the owner doesn't actually give any money. Mortgages don't work in the same way that a normal loan would work where you get a lump sum of money. Instead, the owner and buyer sign a Note. This Note effectively says what the agreed loan amount, rate, and such. The buyer then makes payments until the loan balance is paid off. Then, the buyer becomes the full, legal title holder.
@@WinTheHouseYouLove Thank you. Another question(sorry): In one of your videos you informed us how to check ownership of a property when I go to my property its says I purchased it for 23000 but I actually gave 30000 so why has it been reported differently?
Hmm if it’s on the county site maybe it’s just a clerical error. You can contact them and see what’s going on
@@WinTheHouseYouLove Okay thank you
How do you know if the seller has ownership of the property he’s selling and also how do you know if he records the contract with the county? Thanks
Just recorded a video for you: th-cam.com/video/ivNcVVx1Gs0/w-d-xo.html
Go to the county website
Get a real estate attorney who will do Title search for u. Title company will record the the contract to county
Use land trust docs to secure your investment, no stress, 22 docs, templated
I disagree _ owner financing is only more expensive in the long run if there is a higher interest rate, which is dependent on how much of a risk the owner is willing to take. If the owner wants a high down payment and the buyer can afford it, this is another perk which means less interest in the long term. With specifically a land loan (as oppose to home loan), the mandatory inspection is oriented to specifically protect the bank if foreclosure happens. On wooded, “unused” land this inspection typically costs 1500$ billed to the borrower. It is pointless unless you have reason to believe the property was misused. Owner finance to my knowledge is a no brainer on land- if the option is there and you trust the landowner...
In that scenario yes; however, I’ve never seen owner financing deals with terms more favorable than a traditional loan.
@@WinTheHouseYouLove My rebuttal is an old joke: what’s the difference between a real estate agent and a used car salesman? There isn’t one. As a loan officer it is in your best interest to suggest the best option is to go through traditional loan and real estate channels, to imply high risk otherwise, and maintain a polite, kind, and pleasant demeanor (like every good salesman). In actuality you are discouraging people from finding their own cheap property or home because you are in the industry of finding those cheap properties and flipping them for a profit at the cost of the buyer. You can say you go about it differently but that is how you make your money - by hustling low risk loans to middle class /wealthy borrowers. Sadly it doesn’t matter how good the property buyers credit is, if you are a first time buyer from a low or working class background, the bank see this as high risk, and denies your application or offers super high interest. People in real estate love making these “helpful” youtube videos, but I encourage viewers to consider who they’re taking advice from and their real intentions.
I don’t work as a loan officer anymore so I have zero to gain for any financing choice someone takes. I’m only interested in what is best for people. That being said, if you can find a better deal with owner financing, absolutely go for it. But, I have never seen an owner financing deal better than traditional. I’m willing to change my opinion if someone could present evidence otherwise.
I’m sorry you feel cheated by the banking system, but I don’t represent them. Most of the buyers I worked with were working class and low to moderate income... I’m in Dayton, OH... most of our buyers make $40k year or less. And they get the same rate as buyers who makes $400k. Be careful to not take a small subset of experience and apply it to everything. Not everyone is out to take advantage of others.
@@WinTheHouseYouLove I’ve seen several time’s owner financed homes in Florida were better in the long run than a Bank. I’ve got better deal’s. But then again I can tell I’m better and smarter than you. Not too mention more Testosterone!
@@WinTheHouseYouLove at this property listed for 200k, I offered 155k. The seller’s agent countered with 185k and seller will carry a note for 30k 48months at 4%, which is better than the 6% my bank is willing to give me for this duplex. Any thoughts??
I thought there was Zero Bank involved in Seller/Owner financing.... Isnt that the appeal?
If you are buying this owner financed, at what point is your name added to the title? How will the paperwork look the same or different for the actual deeds, contracts, etc, so that you can know you aren't going to get screwed over by the seller?
Noah, you should check us out, 22 year veteran on using land trust with little to no money down. Full 22 template docs. secure transaction.
Do you have a website to look at etc?
What about turning all of receipt claiming your payments
Can you clarify? I'm not sure what you mean
I’m trying to buy the building I lease for my auto repair shop which also comes with an older rental house. Interest rate is only 3% which is amazing. The house does need some work but it’s always rented because of the location. It’s really a good deal 230k total with 35k down. The problem is I just opened my shop last year and really need more time to come up with the money for down payment. I’m backed in a corner because I have built a business in this location and I either buy the building or close my shop. Really wish the owners of the property could give me more time. They tell me they weren’t in a rush then the building is for sale. Now I have to borrow money for the down payment and man I wish I didn’t have to do that. I have a 780 credit score and I don’t want to ask family for money but I can’t get loans because I just started the business last year. Any creative ways to get money fast without having to use private money at huge interest rates?
You could look at using a HELOC against your current home. A loan against a 401k. A loan from family members. Those are what I can think of off the top of my head.
What if the buyer qualified for a loan but don’t have the cash for the appraisal gap and offer a separate finance situation with the seller on the amount the appraisal gap is.
Hi! For detailed information, consult your agent. Best of luck!
I dont think you mentioned tittle search
Owner Financing A Good Idea for buyers not sellers
What if you do owner financing as I did. And put down $40,000 when the house is 95,000. And the owner goes and sells the house to a mortgage company without you even being asked. Now you owe the mortgage company money on the house.
Interesting, I'm not super familiar with that scenario
Yes you do & you will now make payments to the Mortgage company.
A lot of mortgage companies also do this - sell their mortgage to a different company. The only way I know to prevent this with owner financing is to put a first right of refusal clause in the contract. So, they have to give you an option to buy the mortgage (or get someone else you know to buy it) before they can sell it to someone else. You can get a local attorney to help draw it up.
Useful info but your audio level is bad.
Thanks for the feedback, working on it. :)
what mic is that!?
Neumann TLM 102
Could you get a lawyer to make sure it’s recorded with the county and they can make sure they aren’t going to kick you out after X amount of years? With that being said, would it bring more opportunity to have your name onto the title?
Have attorney draw up papers for any real estate deal ! to protect you and the seller everything is in on paper and legal.
land trust is the answer to documentation and legal footing, with the control of the property in your hand completely...check us out on becoming land trust smart!
How about now in 2020??
Still works :)
「あなたのコンテンツはとても感動的です」、
I had to google translate. 😂 Thank you!
Rocket mortgage wanted $40k down and $450mo for 30 years on an 80k house some 200k debt for 40k. Inspections and insurance would be next on top of $2k taxes. I called it a life ruining proposal. My credits 801. I wound up buying a back tax lot in a good neighborhood which is super hard to find all back tax lots are in worthless ghettos in my county I’m sure that’s common. I built. A great house over 2 years and it feels so good inside something I built. No help ever. You tube and google showed me how to do it. I swear. It was so worth it
Owners can’t legally owner finance a home if there’s a mortgage. It has to be paid in full, otherwise only a bank can legally do a loan.
Not necessarily true that if owner defaults on his mortgage then you too get foreclosed on. Bank wants the money if they have someone in place already paying you may not get foreclosed on. And the term dangerous features is biased. The owner wants to protect their investment. It has to be a win win for both parties, the way you speak you demonize the seller offering financing, for that reasons I am out. This video is mainly to stack the advantage to the buyer. Remember win win
I focus on protecting buyers on this channel. I'm not demonizing sellers, just simply repressing the full scope of what a buyer should be careful of based on how I've seen buyers get taken advantage of.
SPEAK UP!!!!!
I'm sorry but It's clear that you don't know much about seller financing.
What in this video is incorrect?
Just bunch of bolony. I will think most people get in to this is because thay no thay no each other an trust each other...you making it look all negative..sr
Every person I've seen enter into owner financing ends up spending tens of thousands of dollars more than a traditional loan. My job is to help buyers be aware of how to protect themselves. "Trust" is not a reliable factor in contracts and finance.