If you’ve had a hard time selling your house in the Canadian real estate market, and you have considerable equity in the home (or you don’t need the equity out to finance another mortgage), then you might consider owner financing.
Owner Financing in Canada
On the other side of the equation, if you’re having a hard time finding the financing that you need for your home purchase, pursuing a home that offers owner financing is one way to avoid having to stay in that same rent cycle year after year. Let’s take a look at some of the ways that owner financing in Canada can benefit both the buyer and the seller.
If you’re selling a home, you want to get the best price possible, and you want to close as quickly as you can. You’re also looking for a way to avoid as many taxes as you can in the transaction.
Here’s how owner financing can help you:
- Price: When you’re offering owner financing terms that are more flexible than what people can get from a bank, then you can charge more in the sale price — often receiving more than what you would have gotten in a “fair market value” transaction with a typical sale. When people need non-qualifying financing, they are generally always willing to pay a premium.
- Cash: A lot of sellers talk about wanting cash, but they don’t usually need it. Typically, sellers want net cash from the deal, because he has to pay the settlement costs, brokerage fees, title insurance cost and the balance of the mortgage that he had out on the home, if any.
- Quick closing: The #1 hindrance to a swift closing is waiting for lenders to approve the financing. Depending on where you are shopping in Canada, qualifying and closing a new loan can take months. Because the typical standard real estate contract has a contingency in case of financing, it’s possible to end up right back at the beginning if you have a buyer who ends up not qualifying.
- Fewer renovations before selling: Does your home have some aesthetic challenges? Many people have to spend thousands for new carpet, new paint and landscape care just to get the house ready to show. Instead of sinking money into those items, you might consider offering owner financing. You’ll have a wider buyer spectrum, and the people who are shopping might be willing to still pay that fair market value or more because of the soft financing — and then they’ll view the house as a “fixer-upper.”
If you’re buying a home and are having a hard time qualifying for a loan, owner financing can be a real boon to you as well. Here are some of the benefits of owner financing for buyers. Even though you’re likely to pay more (and have a higher interest), you can still get a lot of advantages from owner financing.
- Leaving the rent cycle behind: If you’re coming up to the end of a lease, and you don’t want to sign another year’s lease, finding that owner financing can get you on the road to home equity. The cost is higher up front, but the good news is that if you can get your credit in order, you can take out a bank loan a couple years into your owner finance loan and get a premium interest rate.
- Easy qualification: An owner finance deal will still involve a look at your credit score. However, the owner is aware of the elevated risk and will charge you a higher interest rate as a result. You’ll likely get a lower interest rate than you would get from a private lender, though.
- Improved credit rating: As you make your installment payments on the owner-financed mortgage, ask the owner to agree to report your loan and payments to the major credit bureaus. Over time, that record will help your credit score improve so that you can qualify for a more favorable loan with a bank in a few years.
- No closing costs: This actually benefits both sides, as the side that faces closing costs can end up seeing five figures of money go out the door. As the buyer, you won’t face underwriting fees, origination fees, charges for points, title insurance or credit reports.
Consider taking advantage of the many opportunities for owner financing in Canada. Amansad Financial has resources to connect you with sellers looking to provide owner financing from Ontario all the way to Vancouver.