What does owner finance mean, also lease to purchase?

Asked by Monica Morales, Illinois Sat Oct 25, 2008

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My NC Homes…, Agent, Chapel Hill, NC
Fri Sep 17, 2010
Owner financing is just that, the owner finances the deal rather than the bank. This isn’t all that common for the simple reason that the vast majority of owners aren’t financially capable of doing this. For one they really need to own the home outright, otherwise when then sell the home to you, they would have to pay off their existing mortgage. Unless you were giving them a substantial down payment, unless they owned the house outright they would have to come out of pocket at the closing. Once they have sold you the house they would collect your monthly payments the same as the bank. When I have structured the occasional Seller financed deal, more often than not there’s a balloon payment due. In other words after a period of time (say 5 years) a final lump sum payment is due. This give the buyer a period of time to build up some equity and then go to the bank and get a traditional mortgage that can be used to pay off the Seller when the balloon payment comes due.

Lease to own isn’t complicated, it’s just that most Buyers have absolutely no idea what it really means and I have never actually seen a Buyer execute.

In this case you pay the Seller an non refundable fee up front to take their property off the market. You agree on a purchase price for the property up front. You get possession of the house the same as if you were renting it, and pay a monthly lease or rent fee to the Seller. You are given a period of time to “execute your option to buy” and depending on the terms of your initial agreement the Seller credits you a portion of what you’ve paid them (this can be part or all of the monthly rent and part or all of the original option fee you paid upfront) as your down payment. The advantage of this to a Buyer is it gives them time to get a loan and some of the money spent on renting the property is credited back. Most Buyers think they will be getting all of the money they pay in rent back, but this isn’t the case, if it were it would be the same as the Seller allowing you to live in their property for free while you were paying the rent. Typically there’s a sliding scale, and the quicker you exercise your option to buy the more credit your’ given for the money you’ve paid the Seller, as time goes on you get less and less credit for the money you’re paying as rent.
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Arnold Celis, Agent, Harlingen, TX
Fri Sep 17, 2010
Owner finance means that the owner of the property is willing to sell you the house with a down payment and then you pay the owner directly every month. Normally the interest rate will be much higher than going to a traditional lender. As far as lease to purchase, that gets a bit more complicated and NEVER winds up working out. I would stay away from any lease to purchase transaction.
Web Reference:  http://www.ArnoldCelis.com
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