What Is Owner Financing?
Owner financing is a great option for home buyers who cannot qualify for a mortgage from a mortgage lender and need time to either re-establishing their credit or to document their income. Owner financing offers benefits for both home buyers and home sellers. For home buyers who had a prior bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale, there are mandatory waiting periods to qualify for a mortgage loan. For example, there is a two year waiting period after a bankruptcy to qualify for a mortgage loan. The waiting period starts two years from the discharge date of the bankruptcy. There is a three year waiting period after the recorded date of a foreclosure or recorded date of deed in lieu of foreclosure reflected on the recorder of deed office and shown on public records to qualify for a FHA loan. There is a three year waiting period after the short sale date reflected on the HUD’s settlement statement to qualify for a FHA loan. Home buyers with a prior bankruptcy or foreclosure who have re-established themselves and are ready to be homeowners can not wait out the waiting period to become homeowners and purchase a home via owner financing if they have a home seller willing to cooperate and offer them owner financing.
Home buyers who are self employed and do not qualify due to having massive write offs and not have any income showing may have trouble getting financing. Mortgage lenders want to see two years tax returns with positive cash income from a mortgage loan applicant to be able to qualify them. A self employed home buyer may need some time to be able to re-adjust his or her income tax returns in order to qualify for a mortgage loan. Owner financing may be a great option for self employed home buyers to be able to become homeowners sooner than later until they have their income tax returns on the positive and show enough income to qualify for a mortgage loan.
Mortgage lenders require that mortgage loan applicants have timely payments on all of their credit obligations for the past 12 months. You can have periods of bad credit and low credit scores but most mortgage lenders require that you have been timely with all of your payments in the past 12 months. If for whatever reasons you have had recent late payments, a owner financing deal may be your best option until your late payments season for 12 months and you get your credit re-established.
Benefits Of Home Seller For Offering Owner Financing
Not all home sellers will offer owner financing to home buyers, especially in a sellers market. However, if your home have been in the market for quite some time and there is a lot of competition where there is more housing inventory in the market than there are home buyers, owner financing may be a great option for a home seller. Getting a strong home buyer is key when offering owner financing. You do not want to offer owner financing to just anyone who wants to be a homeowner and your home buyer not pay the monthly housing payment to you. You will have a potential nightmare on your hands. You would want to make sure that you run a thorough background investigation on the home buyer and their family, a credit check, and interview them and make sure that you feel comfortable with them.
One of the greatest benefits of selling your home via owner financing is that you will most likely get the price that you want for your home. Also, you may be able to charge a much higher interest rate than the market rates and make income on the interest rate. Home buyers will not be knit pickers and will be grateful for you giving them the owner financing. Most owner financing home buyers are serious home buyers who need a little time in either re-establishing their credit or self employed borrowers who need time to show more income that is sourced in order to qualify for a mortgage loan. Most owner financing home buyers will normally put a 10% down payment or more on a home purchase.
Attorneys Are Highly Recommended For Owner Financing Transactions
There are risks involved in owner financing home purchases. Both sides should be represented by real estate attorneys so all grounds are covered and their interests are protected. There are dozens of ways to structure owner financing home purchases and both sides needs to make sure that the structure they choose is the best possible owner financing structure for both parties. Owner financing home purchases should be treated just like regular home purchases with a mortgage lender and should have a closing at a title company.