What is Owner Financing?
Hi i’m chip waller i’m often asked about what is owner financing owner financing is whenever someone wishes to sell the real estate and they’re going to act as the bank and hold the mortgage or note and mortgage and provide financing for the purchaser so the purchaser does not have to go to a lending institution to borrow the money this is advantageous advantageous
To the purchaser because they don’t have to have the closing costs that banks charge or go through the underwriting requirements as far as the sellers concern they get a higher rate of interest than what they would on their investments the difference as far as getting cash of course it’s not liquid and that is a downside to owner financing for the seller what goes
Into the owner financing is is how much of a down payment do they do you receive before you agree to hold the note and mortgage this is usually a percentage rule of thumb is to ask at least twenty percent down as a down payment in cash and then agreed to possibly hold the other eighty percent the more down payment the more secure more secure you are and dealing
With owner financing you want to really be satisfied that if you take back the real estate that you’re financing that it’s going to be worth what is owed to you with this recent economic crash as far as real estate mark is concerned no one could anticipate that the value of property would go down by as much as fifty or sixty percent so the rule of thumb of twenty
Or thirty percent was not a very good rule if you finance property back in 2005 and 2006 other things that you look at an owner financing is what is the interest rate usually at this time you’re looking anywhere six seven eight percent and even though borrow say well i can go to the bank and get it for four or five well if you go to the bank get it for four or
Five you’ll have a lot more closing costs and a lot bigger hassle then you also need to address how long you’re going to hold the note mortgage and that you can keep the payments small and then let’s say you agree to finance it for thirty year three years you can spread the payments out as if they were going to pay for 30 years and at the end of three years they
Have what they call a balloon payment and they must come up with all of the money or if you agree to finance and save for 15 years 10 years or 20 years you can have a level payment called an amortized payment or amortization and then you get an amortization schedule that goes along with your financing and that’s some of the aspects of owner financing the other
Thing before agreeing to owner financing you need to understand what it’s going to take if the buyer fails to make the payments you have to go through the mortgage foreclosure process and which takes time which is probably six to nine months at a minimum the cost is anywhere from 2,500 to five thousand dollars and up depending on whether or not it is commercial
Property and if it’s contested so if you have any questions about owner financing let me give me a call at 8472 288 i’ll be glad to talk to you thank you
Transcribed from video
What is Owner Financing? By Roland Waller
