Owner Financing is the acquiring of property whereby a buyer gets to finance the purchase through the person who is selling. This could be because the prospective buyer cannot afford financing normally or they are not willing to pay the current interest rates in the market. This will also be possible if the seller is having a hard time selling off the property. It may take care of the purchase price and then a bank loan can be used to cover the remaining difference.
Owner financing homes has been possible over the years due to the rising property costs and more sore the transactions that are involved int he acquiring of property. This mode of financing is a loan to a purchaser that is provided by the owner of a piece of property. This one then follows the conventional payment methods whereby a down payment is paid out, then monthly installments over a specified time, and interest rates until the loan has been fully repaid in full. Owner financing homes is beneficial to a buyer in that they may not be able to obtain a loan from the bank, to acquire the property. Being an investment whose return will be guaranteed by the ability of the one who is buying the property to cater for the pending mortgage.
Some of the benefits arising from this include making savings in closing costs, room for negotiation of selling price on the part of the seller, room for negotiating interest rates, the probability of receiving a higher yield on the investment by receiving equity with interest.
However, there are several disadvantages as well like foreclosure taking up to a year, delay of delivery of the property’s title deed due to encumbrances not divulged by the seller, or which they don’t know. The buyer may be diligent in making payments but the seller might not make payments to the financing body that may be in place which may lead to the property’s foreclosure.
There are also cases that arise such as the buyer abandoning the property because of the minimal investment at stake even after the seller has agreed to a small down payment from the buyer. There is no protection against over valuation of the property since there will be no protection from home inspection, mortgage insurance or a valid appraisal to ensure that they are not paying too much for the property.
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