This article covers Owner Financing On Home Purchase For Buyers And Sellers
Owner financing is a great option for homebuyers who cannot qualify for a mortgage from a lender and need time to either re-establishing their credit or to document their income.
Owner financing offers benefits for both home buyers and 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 government and/or conventional loans. For example, there is a two-year waiting period after Chapter 7 bankruptcy to qualify for FHA, VA, USDA Loans. The waiting period starts two years from the discharge date of Chapter 7 Bankruptcy discharged date. There is a three-year waiting period after the recorded date of 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 FHA and USDA Loans.
There is a three-year waiting period after the short sale date reflected on the HUD’s settlement statement to qualify for FHA and USDA Loans. Homebuyers with a prior bankruptcy or foreclosure can take advantage of owner financing if they do not meet the waiting period requirements. It gives buyers time to re-establish themselves. Seller financing gives a jump start for buyers to be homeowners and not wait out the waiting period to become homeowners. Buyers can purchase a home via owner financing if they have a seller willing to cooperate and offer them owner financing.
Benefits Of Owner Financing On Home Purchase For Self-Employed Home Buyers
Homebuyers 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.
Lenders want to see two years of tax returns with positive cash income from borrowers. Self Employed borrowers need to meet the minimum debt to income ratio requirements. 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 traditional home loan. Owner financing on home purchase may be a great option for self-employed home buyers to be able to become homeowners sooner than later.
It gives them time until they have their income tax returns on the positive and show enough income to qualify for a government and/or conforming loan.
Owner Financing On Home Purchase For Borrowers With Recent Late Payments
Lenders require borrowers have timely payments on all of their credit obligations for the past 12 months. Consumers can have periods of bad credit and low credit scores. Lenders require borrowers have been timely with all of their payments in the past 12 months.
If for whatever reason borrowers have had recent late payments, an owner financing deal may be the best option until late payments season for 12 months and get credit re-established.
Benefits Of Home Sellers
Not all home sellers will offer to finance to home buyers, especially in a seller’s market. However, if the home has been in the market for quite some time and there is a lot of competition. On a seller’s market, there is more housing inventory in the market than there are home buyers. Owner financing on home purchase may be a great option for a home seller.
Getting a strong home buyer is key when offering seller financing. Homeowners do not want to offer owner financing on a home purchase to just anyone who wants to be a homeowner. Homebuyers delinquent on paying monthly housing payments can be a nightmare. Sellers would want to make sure to run a thorough background investigation on buyers. Home sellers should fully vet potential owner-financing home buyers. Do credit checks, and interview them. Make sure sellers are fully qualified and have the ability to pay their housing payments..
Getting Top Dollar For The Home By Sellers
One of the greatest benefits of selling the home via seller financing is that sellers will most likely get the price they want for their home. Also, sellers may be able to charge a much higher interest rate than the market rates and make income on the interest rate. Homebuyers of seller-financed homes will not be knit pickers. They will be grateful for giving them the owner financing on the home purchase.
Most seller financing home buyers are serious buyers. These buyers need a little time in re-establishing their credit. They may be self-employed borrowers who need time to show more income that is sourced in order to qualify for a traditional mortgage. Most buyers will normally put a 10% down payment or more on a home purchase.
Attorneys Are Highly Recommended Transactions
There are risks involved in owner financing on home purchase transactions. Both sides should be represented by real estate attorneys. This way all grounds are covered and their interests are protected. There are dozens of ways to structure owner financing on the home purchase. Both sides need to make sure that the structure they choose is the best possible financing structure for both parties. Owner financing on home purchase should be treated just like regular home purchases with a lender and should have a closing at a title company.
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August 13, 2021 - 4 min read