Ever since the real estate market downturn in 2007 we’ve been asked the same question by many of Derbyshire’s potential buyers: Do you offer owner financing? This is a very good question and one that we feel will continue to pop up given the time and complexity involved in obtaining a loan from a bank. This article will deal with some of the finer details of owner financing versus traditional bank financing.
In today's economic climate, many buyers are looking to purchase homes or land without having to deal with some of the hassles of securing a bank loan. Unless you are a first time buyer, you have more than likely walked through the process of obtaining a bank loan. If your experience was anything like the folks we work with, the bank loan process can be daunting, time consuming and produce more than a little bit anxiety...even despair.
Over the last five or six years, with more stringent lending guidelines, it has become even more difficult to obtain a conventional bank loan for real estate, especially lots or raw land. The bank underwriting process has become longer, more cumbersome, and more confusing than ever before. As a result, buyers have started to seek out properties that offer owner (or seller) financing.
For the buyer, owner financing typically means less paperwork, less red tape and less time involved. For the seller, being able to offer ow
ner financing can mean the difference in selling your property...or not. It can also mean a stream of monthly income in the form of mortgage payments from the buyer. Typically, in order to be able to offer owner financing, a seller must either have no mortgage on their property or they must pay off their existing mortgage in order to be in a "secured" position with respect to the new loan they wish to offer to the buyer.
Owner financing is not an option in most real estate transactions because typically the seller has a mortgage that he or she needs to pay off. However, if you as a buyer are willing to take some time and dig a little deeper you can find properties that meet your needs that also happen to offer owner financing. Owner financing can definitely be a win-win situation but it takes a both a willing buyer and a willing seller.
Buyers and sellers can negotiate the terms of the owner financing which is something that rarely, if ever, happens with a traditional bank. This can mean more favorable terms for both parties. Owner financing is not complicated and provides the same level of protecti
ons to the buyer and seller as with a traditional bank loan. Here's a quick summary of the benefits of using owner financing for both the buyer and the seller:
For the Buyer
1. Less complicated underwriting process (you are dealing directly with the seller or his representative)
2. Less time involved
3. You can negotiate the terms of your mortgage with the Seller
For the Seller
1. If you are in a position to offer owner financing, it can make your property much easier to sell
2. You can turn an existing asset into a n
ice stream of monthly income
3. You have the same level of security as a big bank would have on the loan
As you can see, owner financing can be very beneficial to both parties when it is structured correctly. For anyone considering using owner financing it is wise to consult with an attorney regardless of whether you are a buyer seeking owner financing or a seller wishing to offer financing on your property. Our experience is that owner financing is a terrific tool to facilitate real estate transactions when the parties don't want to go through the hassle of dealing with a big bank.