Home Buying in Myerland Area>Question Details

Auto2886, Both Buyer and Seller in Myerland Area, Houston...

what does "owner finance" mean?

Asked by Auto2886, Myerland Area, Houston, TX Wed Nov 16, 2011

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Basically, the seller is the bank, sets the terms and rates, and benefits from the knowledge that if they buyer walks they get to keep all funds and the property. The Buyer, however, must make sure he/she has a knowledgeable agent that shows he/she how the money stacks up against an FHA loan, that the home is a reasonable price so they can refianance before the balloon note hits, and weigh the pros and cons against just renting a cheap place a few years while they save for a downpayment and work on their credit scores.....
Check out my website and e-mail me with any questions, I will be a happy to help.
0 votes Thank Flag Link Fri Dec 2, 2011
Owner/Seller financing, when an owner offers a buyer a mortgage on the property being purchased. As lending conditions have tightened and the market has slowed seller financing is a great alternative to traditional methods. Typically the owner agrees to transfer title in exchange for a note and interest in the property. The seller takes the place of the bank. It can be simple and straightforward. You need to consult an attorney before proceeding.
Web Reference: http://www.clovelake.com
0 votes Thank Flag Link Fri Dec 2, 2011
The reason most people seek this type of transaction is because they are not eligible from a mortgage from a traditional lender. Any work around to side step the mortgage underwriting guidelines shifts the risk from the lender to your side of the ledger, greatly increasing the odds of disaster. The guidelines are actually fairly liberal despite what most people believe. I have linked below some info on rent to own, but there are several other topics on my blog that may protect you. I hope my observations keep you away from harm, good luck.
0 votes Thank Flag Link Fri Dec 2, 2011
The simple answer to your question is that instead of a bank or mortgage company providing you with a loan to purchase a home, the owner of the home will let you make payments directly to him/her at an agreed upon amount per month until an agreed upon sales price is reached. While this seems to be a very straightforward process, it isn't. There are risks involved for both the buyer and seller. As with a loan from a bank or mortgage company, if the buyer defaults on the payments, the seller can "foreclose" and retain ownership of the home and the buyer loses all the money (equity) he has paid to the seller. The terms of an owner financed transaction can be complicated, and it is imperative that a real estate attorney draw up the purchase contract to ensure each party is protected. For the buyer, the rate of interest the owner will charge is at least double the normal interest rates, and there are numerous factors involved in an owner financed purchase. If the buyer cannot obtain financing from a lending institution, an owner financed purchase can be an option, but know at the outset that it iposes risks. Consult a real estate attorney before proceeding.
0 votes Thank Flag Link Thu Nov 17, 2011
If asking from the buyer perspective, it means you will:
* Pay 30% more than fair market value
* Lock in an interest rate of at least twice as high as current market rate
* Put at least 10% down - but more likely 20% and up
* Have to show good credit, pay stubs, 2 years tax returns, etc. to qualify
* Tend to wait to buy while your credit gets repaired after discovering all of the above

If asking from a seller point of view:
* Consult an attorney before you list
Web Reference: http://jlres.net
0 votes Thank Flag Link Thu Nov 17, 2011
Read the info on the first tow links below, they contain some parallel information. Seller financing appeals to a buyer that is unable to arrange financing from an institutional lender. Any work around when you do not qualify for a loan increases your level of risk, not saying it is bad, just pointing out you are more at risk. Hope this keeps you out of harm’s way.

Info on Lease Option or Rent to Own:
http://www.trulia.com/blog/jimsimms/2011/11/rent_option_or_r…
http://www.trulia.com/blog/jimsimms/2011/11/rent_to_own_continued

Criminal Credit Repair:
http://www.trulia.com/blog/jimsimms/2011/10/credit_repair_ca…

Down Payment Assistance in KY:
http://www.trulia.com/blog/jimsimms/2011/03/down_payment_ass…
0 votes Thank Flag Link Thu Nov 17, 2011
A property purchase transaction in which the property seller provides all or part of the financing. When part or all of the purchase price, less the buyer's down payment, is carried by the seller, the seller is providing owner financing. It doesn't matter if the property has an existing loan, except to the extent that the existing lender might accelerate the loan upon sale due to an alienation clause. Instead of going to the bank, the buyer gives a financing instrument to the seller as evidence of the loan and makes payments to the seller.

If the property is free and clear, meaning the seller has clear title without any loans, the seller might agree to carry all the financing. In that instance, the buyer and seller agree upon an interest rate, monthly payment amount and term of the loan, and the buyer pays the seller for the seller's equity on an installment basis.

The security instrument is generally recorded in the public records, which protects both parties.
0 votes Thank Flag Link Thu Nov 17, 2011
To add to Dan Tabit's excellent reply, there is generally a specific time frame (usually three to five years, although it can be any number that the two parties agree to) after which the buyer would have to obtain more traditional financing to pay off the balance of the loan to the seller. This is referred to as a "balloon." Most owners also require a substantial down payment, and the interest rate is usually somewhat higher than what the banks charge. I've done several such transactions, with mixed results for the parties involved. In one instance, the seller had to foreclose due the buyer's inability to obtain the requisite financing. There are advantages and disadvantages to both parties. Buyer and seller both need representation to protect their respective interests. If I may be of further service, please feel free to contact me ... (713) 213-6350 ... or ... al@algeffon.com.
Web Reference: http://www.har.com/algeffon
0 votes Thank Flag Link Thu Nov 17, 2011
Auto,
It means that the owner may be willing to be the "banker" and extend financing for a while. This can be a good option for a buyer who currently doesn't qualify for conventional financing but believes they will be able to in the near future. There are no set terms; they can be whatever the buyer and seller agree to.
For a buyer, it can mean getting a loan. To the seller the rate and down payment typically reflect a better return than they might get in the market.
0 votes Thank Flag Link Wed Nov 16, 2011
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