What are the Benefits Owner Financing? If you are new to the home purchasing process, one of the most important numbers you are likely thinking of is the price. After all, a home is likely to be the largest investment that you will ever make. When you’re perusing home listings, though, don’t be scared off if the prices you see seem a bit high. After all, there is often a significant gap between the asking price and the selling price.
Benefits and Risks of Owner Financing
The asking price is what the seller thinks the property is worth. A lot of the time the property appraisal is the starting point, but other factors also play a role. A lot of the time, the seller’s realtor will look at comparable transactions to see what similar houses are selling for in that area. However, there are other instances in which the asking price is unreasonably high — or at least higher than what you will end up getting it for. That number is just the starting point in the negotiation. You will want to make an offer that is lower as you seek to agree on a selling price. If you have an inspection performed on the property, and there are a number of issues, then you can negotiate a lower selling price in order to cover the cost of repairs.
The market has a lot to do with final price. In a seller’s market, there aren’t as many homes available, or values are on the way up — or both. In this instance, you have less wiggle room as a potential buyer, and you are going to end up paying closer to the asking price, because if you don’t, someone else will. In a buyer’s market, more people are looking to move, meaning that there is plenty of inventory on the market. In a situation like this, you can generally negotiate a lower purchase price.
Benefits of Seller Financing
No matter what the market conditions when you sell or buy a house, a owner finance mortgage is an option for providing the buyer with the credit necessary to purchase the home. There are a lot of buyers out there who have the ability to put down a 10 or 15 percent down payment for a house, but their credit isn’t quite up to bank lending standards, or their income comes from self-employment and therefore is difficult to verify to the satisfaction of a traditional lender. The also fall into the gap where they cannot get a private mortgage due to insufficient equity. However, you can still benefit as the seller from the interest from this loan as well as the purchase price.
Let’s say that you are selling a house for $400,000. You have a potential buyer who can put $60,000 down but can’t qualify for a traditional or private mortgage. However let’s take for example that that buyer can get financing up to 75% of the value of the home; $300,000. You now then have $360,000 as liquid cash (less any mortgages), and can provide a short term seller finance on the remaining balance. The rate is really the only negotiable aspect of this transaction. If a person is buying a home and requires some owner financing, they must understand that the accommodation of the seller finance is the negotiation. Now, for example let say you charge 10% on the $40,000 owed to you over a 24 month term, interest only and compounded monthly; you would make $8000 in addition. It is almost like you sold your home for $408,000!!
Another advantage to being the “bank” in Owner Financing Real Estate is that you get rid of your home sooner. Instead of having it on the market for months on end, you can go ahead and get rid of it. You don’t get as much up front, but you have a regular stream of income until it is paid for.
In a seller finance mortgage situation, you also have more leverage over the buyer. Because you are in charge of approving not only his application but also his interest rate, you have as much control over the outcome of your loan as any bank. Even if the buyer does not have any money to put down at the present time, you might want to consider entering a lease purchase agreement. The buyer gets the chance to purchase the house at a set price; the seller gets the security of the sale.
No matter how you structure the deal, if you can get a owner finance mortgage as a buyer, you are in the house of your dreams sooner, building equity of your own. Talk to Amansad Financial’s mortgage professionals today to find out the best deal for you!