najehpinka, Other/Just Looking in Houston, TX

What is Owner financing?

Asked by najehpinka, Houston, TX Thu Mar 27, 2014

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Al Geffon, Agent, Houston, TX
Thu Mar 27, 2014
We're in the midst of a sellers' market, and homes are moving quickly. There's no incentive for a property owner to finance a transaction, especially when there are more qualified buyers looking than there are homes for sale. Unless the property is in a less-than-desirable location and/or needs a ton of work, owner financing doesn't seem feasible.

On the buyers' side, most have credit issues and are unable to obtain traditional financing. Those owners willing to take a chance therefore require some assurance, generally in the form of a substantial down payment ... 20% is not unusual. In addition, expect to pay about twice the going interest rate for the three to five years that the owner will act as the bank. Within that time frame, you'd have to qualify for a mortgage to pay off the balance to the owner ... it's known as the "balloon." Should you not be able to obtain financing, the owner can (and usually does) foreclose. Your down payment would be forfeited.

I don't recommend owner financing, especially in a market such as this. If nothing else, you'd be fortunate to locate a home ... do you really want to be that limited as to choice? Work on your credit if necessary and accumulate some cash, so that you may qualify in the more traditional manner. Best of luck.
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Carolyn Wol…, Agent, Houston, TX
Thu Mar 27, 2014
Mark is so right.
I have done owner finance deals for my Sellers before and as long as the Buyer, Seller and Title company are all on the same page and do the deal correctly, it can be a good deal for the Buyer as long as they get all of their terms and amortization tables all in writing.

One thing that can throw a wrench in the deal is repairs, etc. You want to make sure you get an Independent Home Inspection in order to know what condition the home is in.
Make sure there are no Verbal agreements or "side deals" to what is going to be repaired later down the road. All negotiations pertaining to repairs and upkeep must be in writing.

Good luck!
0 votes
Mark McNitt, Agent, Houston, TX
Thu Mar 27, 2014
When an owner of a home provides financing to a buyer. They typically own the home free and clear and will act as a lender. If for some reason you don't repay the loan, they can "foreclose" and take their home back.

Because they are not part of a company, they can finance anyone they see fit. They don't have to follow government rules. They can overlook poor credit, lack of paperwork or good references. The trade off is they would likely be charge you a higher interest rate and possibly want more money down. Also they might want the loan to be paid off earlier.

As always, you would want a Realtor representing you. These type of sellers are a haven for those that are scamming and looking to rip you off. Before turning over ANY money, make sure you have checked out the owner and make sure they actually own the home. Work with a Realtor and a title company to protect you.

Good luck!

Mark McNitt
m 832-567-4357
Bernstein Realty, Inc.
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