Benefits of Owner Financing Austin Real Estate
Owner Financing Benefits: Buyers
If you wish to buy a home but don’t have the credit and cannot afford the down payment, then owner financing is an option you may look out for. Owner financing or seller financing in Texas is a process by which the seller offers a part or whole of the home purchase price with or without a mortgage on the property. Despite the occasional elevated purchase price and slightly higher interest rate, there are many benefits to a buyer who engages in an Austin owner finance transaction.
The buyer, in many cases, prefers owner financing to conventional financing because it does not require traditional bank income and credit approval. You may have poor credit because of a divorce or recent bankruptcy. You may be self-employed and cannot prove income or new to your job and cannot meet strict lender guidelines. Even if you as a buyer could qualify for a loan, the rate will be astronomical if you have poor credit. Furthermore, few conventional lenders offer fixed interest rate loans to people with a poor credit rating. As you can see, there are dozens of reasons why a buyer cannot qualify for a conventional bank loan. Owner financing becomes the perfect solution for the buyer.
An owner financed home sale may give you a chance to improve your credit rating by owning a home and making payments timely.
No Loan Costs
One of the biggest benefits for owner financed home buyers is not having to pay the costs associated with conventional loans. Points, origination fees, underwriting charges, appraisal, credit reports, title insurance and the plethora of other “junk” fees charged by conventional lenders can amount to thousands of dollars at closing. The buyer is free from these with an owner financed home sale.
A buyer can close and move into an owner financed property within days, since there is no third party lender holding up the transaction.
There are a lot of families who want to purchase a home; Unfortunately, the ongoing credit crunch makes being approved for a traditional mortgage loan daunting at best. If you are self employed or on fixed income, or have had a bankruptcy or past foreclosure, you can qualify to owner finance your very own home. If you have at least 10% down and can afford monthly payments, you are approved!
Owner Financing Benefits: Sellers
Investment savvy home sellers or sellers with little to no equity are finding creative ways to sell their home in Austin. One of the major problems in today’s real estate market is the lack of financing vehicles available to buyers. Buyers with good to average credit find it harder and harder to get approved for the amount of money they would like at an interest rate that they feel comfortable with. Owner financing provides an easy bridge to close a buyers financing gap. In many cases, the seller can have most of his needs satisfied by an Owner Finance sale rather than a traditional cash sale. Let’s look at these needs one by one.
There is no doubt that a seller can insist on and receive the highest price when offering flexible owner financing terms. In many cases, the seller can receive more than fair market value of the property by offering these soft terms. People are always willing to pay a premium for non-qualifying financing.
Nearly every seller says he wants all cash, but few need it. What the typical seller wants is the most net cash from the deal. Often, the seller has to pay closing costs, title insurance, broker fees and the balance of existing financing. In addition, there may be capital gains tax due to Uncle Sam. In many cases, the sale of a property by an installment sale (particulary a “wraparound mortgage“) will net the seller more future yield than any source from which the cash proceeds were reinvested.
Nothing holds up a sale more than new lender financing. In some areas of the country, it can take months for a buyer to qualify and close a new loan to purchase your property. Since most standard real estate contracts contain a financing contingency, you may end up back at square one if your buyer does not qualify. Furthermore, if your house is not particularly nice or unique, it may take you some time to even find an interested buyer. Since you are competing with all the other houses for sale, you may need to spend thousands of dollars in paint, new carpet and landscaping just getting the house ready for the market.
In down markets sellers need to use every tool available to sell their home in Austin quickly. Quicker sales tend to be more profitable and provide less headaches than chasing a down market. Owner Financing can give sellers the advantage they need to overcome a key purchasing hurdle, opening their property up to hundreds if not thousands of potential owner financed home buyers.