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Thursday, June 28, 2012
What are the benefits of owner financing to buyers and sellers?
With the economic conditions in the last couple of years in the country, many people went through some hard times and resulted in loss of credit points. In the same time, banks have been adding more and more requirements and restrictions regarding credit score.
People still want to live in a house but don't want to rent and don't have the credit to qualify for a mortgage. So here comes the owner financing as an option. Owner financing or seller financing is a process by which the seller offers to be your mortgage provider.
The buyer may have poor credit due to any reason like job loss for a while that made the buyer default on bills, student loans, bankruptcy, divorce, transferred to a new job after a period of unemployment or self-employed who is not reporting the income and cannot meet mortgage requirements.
Seller's requirements are less restricted than regular lenders.
Improving Your Credit
With the assistance of some escrow agencies, they can report to credit bureaus that the buyer is making payment on the current owner financing loan which should help the buyer improve the credit score in a reasonable period of time.
An additional benefit for the owner financing transaction, the buyer doesn't have to pay all the fees charged by lenders to get a loan.
Owner financing terms vary from one house to the other as each house is individually owned and each owner might have different requirements. In general, most of sellers require at least 10% down payment, interest rate can be 7-9% and a balloon payment in 3-5 years. Balloon means that the buyer will need to refinance with regular mortgage in 3-5 years.
Going through a mortgage company, it can easily take 40 days to close on a house. With owner financing, the whole process can be done in a week.
For Home sellers, they are also been affected by the restrictions imposed by lenders and waiting for 2-3 weeks hoping that the underwriter will approve the loan but unfortunately when the loan process goes south, the seller has to restart the whole process again with a new buyer.
That being said, so sellers have to consider some creative ways like owner financing to sell their house.
With owner financing, the seller is offering a lot easier qualifications than a lender which gives the seller the privilege of asking for the full market price for the house.
Seller may ask for a downpayment that covers the broker fees, the closing costs, and some extra cash in hand. Also, with the use of the escrow agency company, they can service the loan for the seller with some small fees (usually charged to the buyer) they will collect the monthly installment from the buyer and pay the original mortgage of the seller which provides peace of mind for both the buyer and seller.
As discussed under the buyers section, closing can be done in a matter of one week.